Bloomberg: Europe’s banking sector could collapse under debt pressure

The protracted coronavirus pandemic paints a bleak outlook for European banks, which are facing multibillion-dollar debt from outstanding loans.

Bloomberg: Europe's banking sector could collapse under debt pressure

Writes about this agency “Bloomberg”.

Due to the crisis, not all clients can pay off their loans. Ultimately, these debts accumulate and become a heavy burden for financial institutions. The combined losses of banks in continental Europe and the UK are forecast to exceed € 800 billion. This is enough to destabilize even the largest representatives of the banking sector, Bloomberg emphasizes.

In this situation, officials responsible for the European financial system have a choice between two scenarios. They can ignore the problem, hoping that the banks themselves will get out of the crisis. Or they can take control of the situation by simultaneously liquidating the weakest banks.

According to the agency, the European Union chose the first scenario during the 2008 crisis. The results were disappointing as the banking sector today is too dependent on government support and too bloated to be profitable. Moreover, it is weakened by unpaid loans, of which, even before the start of the pandemic, accumulated over 500 billion euros.

The failure of the EU supranational structures is also a problem. For example, the European Central Bank and the Unified Decision Council, although they have the right to declare banks insolvent, the responsibility for recapitalizing or closing them lies mainly with individual governments, which have their own agendas and sometimes do not have the resources to provide support.


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