Spain, not Greece, may be biggest eurozone threat

by Charles Dumas

Financial Times
September 21, 2011

Greek default is the high-profile threat to eurozone banks that hogs the headlines, and drives down the share prices of the region’s banks. But, aside from the Greek banking system itself, Greece is not a major threat to European banking solvency.

Substantial ownership of Greek debt by French and German banks is a manageable portion of their books, and they are supported by countries with strong finances.

By contrast, Italy’s very large banking system is heavily exposed to its government debt. Equally worrying are Ireland, Portugal and Spain where the debt excesses are in their private sectors – in each case largely bank financed. These excessive debts, the banks’ chief assets, could soon prove to be worth well under 100 cents in the euro.

More