/ world today news/ The wave of bankruptcies of credit institutions is gaining momentum throughout the Western world. Following US Bank of Silicon Valley and Signature Bank, First Republic Bank is now at risk of failure. Shares of the German “Deutsche Bank” fell by 14%, “Commerzbank” – by 8.5%, the French “Societe Generale” lost 7.4%. The Swiss “Credit Suisse”, which practically admitted bankruptcy, was urgently bought by the largest national bank UBS. The International Monetary Fund (IMF) believes that the financial core of the Old World is close to splitting.
One chapter for all
In Europe, as in the United States, monetary policy tightened. Last week in England they raised the prime rate to 4.25% – the maximum in 15 years. In Switzerland now one and a half percent, and it was minus 0.75. Analysts believe that such an abrupt transition will create many problems. The head of the IMF, Kristalina Georgieva, notes: this “inevitably creates stress and vulnerabilities”.
The consulting company “Oxford Economics” predicts a recession in developed countries. Experts at the United Nations Conference on Trade and Development said changes in monetary and fiscal policy would push the world into long-term stagnation, causing more damage than the 2008 financial crisis and the coronavirus pandemic.
Due to the irrational policy of the US Federal Reserve, the European Central Bank and the Bank of England, a critical mass of overdue loans has accumulated, says economist Leonid Khazanov. Gaps appeared in the banks’ balance sheets. The weak are bankrupt or close to bankruptcy, the strong have serious problems. According to the expert, the crisis can cover Great Britain, France, Spain, Italy, Portugal.
Weak link
European regulators, like the US, are trying to control inflation. However, they cannot stop the rise in energy prices, and servicing the debt will become more expensive. In credit-based economies, this will have a negative impact on both businesses and ordinary citizens. In addition, the demand for credit will fall – banks will lose profits. Investors are afraid of losing their savings. Depositors withdrew about $100 billion from their accounts in March. Some experts believe that the money will simply be “thrown under the pillow”, while others predict the purchase of gold.
The consequences of investment outflows and loss of confidence are clearly visible at Credit Suisse and Deutsche Bank. A week ago, the price of insurance against the failure of a major German bank soared, and shares fell 14%. This can weaken the national currency and cause an economic downturn. In Germany, banks form the basis of financial and industrial conglomerates, so the authorities will make every effort to protect at least the big players.
Industrial companies are more likely to survive the crisis, believes Alexander Razuvaev, a member of the Supervisory Board of the Guild of Financial Analysts and Risk Managers of Russia. Banks, on the other hand, have a loan capital share of 85-90%, so they cannot cope without special support measures. In the EU, the question arises how and whom to save: there are many countries, financial institutions are different, and the currency is one. The economist is sure that this opens a field for corruption.
Among other things, analysts expect a decline in the standard of living. “At risk will be ordinary people who are already heavily indebted due to the high costs of housing, education and consumer goods.” There will be more poor and homeless people in the Old and New World,” warns Khazanov.
The end justifies the means
The situation in Europe is aggravated by pressure from Washington. The US Department of Justice has announced an investigation into Credit Suisse and UBS, which are accused of violating anti-Russian sanctions. Experts believe that in this way the Americans hope to redirect capital to themselves.
“The depositors immediately got nervous, a real panic is not excluded. Further events can develop according to the usual scenario: long queues at the offices of the two banks to withdraw deposits, a drop in liquidity and a collapse,” explains Khazanov.
The situation with Raiffeisenbank International is similar. According to Reuters, the US Sanctions Agency has sent the bank a number of inquiries regarding business in Russia. After that, shares on the Vienna Stock Exchange lost eight percent in one go. Sanctions Representative James O’Brien flew to Austria. The US Treasury Department tries to control all partners and uses any means for this, including large fines. Such was the case with the British bank Standard Chartered in 2019, whose employee tried to violate sanctions against Iran. More than a billion dollars were recovered by the company.
Such a US policy could not only cause a severe crisis, but also completely destroy the Eurozone. Razuvaev notes the extreme vulnerability of the EU. With the exit of any country from the monetary union, the whole system will collapse. “For example, the Swiss franc will not recover. In Italy and France, the desire to return to their own currency units is becoming stronger. Such a process will not go smoothly and will be comparable to bankruptcy,” he is sure.
All this will lead to the flight of investors to the US. As a result, Washington will be able to finance debt obligations and patch budget holes.
Translation: V. Sergeev
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