One of the questions I am getting more and more often about the current economic crisis is, if this could turn into another financial crisis where banks will get into serious trouble. To be honest, so far, I see little signs that banks are in distress. On the one hand, I am somewhat relaxed because banks have substantially refinanced their balance sheets and been more disciplined in their lending practices than before the Global Financial Crisis 2008 (GFC). However, there are still vulnerabilities. In the Eurozone, we may have the ESM and the ECB as lenders of last resort for troubled and overleveraged European banks, but the lack of coordination between stronger and weaker countries in the fiscal arena is still worrisome. As the discussion about Coronabonds has shown once more, there is little love lost between the highly indebted southern European countries and the fiscally more solid Northern European ones. At least, there is plenty of resistance in the Netherlands and Germany to pay for Italian debt even in the biggest crisis since the Great Depression. So far, this has not been a problem, but it could spiral out of control if the economic crisis deepens or takes longer to resolve than we expect.
What if this turns into another financial crisis?
What if this turns into another financial…
What if this turns into another financial crisis?
One of the questions I am getting more and more often about the current economic crisis is, if this could turn into another financial crisis where banks will get into serious trouble. To be honest, so far, I see little signs that banks are in distress. On the one hand, I am somewhat relaxed because banks have substantially refinanced their balance sheets and been more disciplined in their lending practices than before the Global Financial Crisis 2008 (GFC). However, there are still vulnerabilities. In the Eurozone, we may have the ESM and the ECB as lenders of last resort for troubled and overleveraged European banks, but the lack of coordination between stronger and weaker countries in the fiscal arena is still worrisome. As the discussion about Coronabonds has shown once more, there is little love lost between the highly indebted southern European countries and the fiscally more solid Northern European ones. At least, there is plenty of resistance in the Netherlands and Germany to pay for Italian debt even in the biggest crisis since the Great Depression. So far, this has not been a problem, but it could spiral out of control if the economic crisis deepens or takes longer to resolve than we expect.