Lira currency MELTDOWN sparks eurozone panic as Turkey-US row ‘puts EU borders at risk’

Saturday, August 11, 2018
By Paul Martin

THE escalating war of words between Turkey and the US could spark a huge problem for the eurozone, since European central banks are owed more than £100bn by Turkish borrowers.

Sat, Aug 11, 2018

The economic spat between the US and Turkey has continued to escalate today, as the struggling lira currency plunges in value.

Turkey’s currency has recently plummeted to record lows against the US dollar, after US President Donald Trump hit his Turkish counterpart with devastating sanctions.

The Turkish economic woes and the US sanctions were sparked by a diplomatic row between the two countries over the detention of an American pastor in Turkey.

The subsequent plunge in the lira has prompted fears in Europe over the exposure to European banks, which have lent heavily to Turkey.

The European Central Bank (ECB) is concerned that contagion will cause Turkish borrowers to default on foreign currency loans.

These loans make up about 40 percent of the Turkish banking sector’s assets.

Data from the Bank for International Settlements (BIS) shows that Turkish borrowers owe Spanish banks £65 billion, French lenders £30 billion and banks in Italy £13 billion.

This has sparked concern at the Single Supervisory Mechanism, the ECB’s financial watchdog, over possible spillover effects.

The currency panic has seen investors dump eurozone bank shares, particularly in Spain’s BBVA, Italy’s UniCredit, and France’s BNP.

Last night, shares in BBVA were down 5.7 percent, UniCredit dropped 6.4 percent, and BNP Paribas plunged 4.4 percent.

Bob Hormats, who served in the White House under President Obama, also warned of wider geopolitical repurcussions if President’s Recep Tayyip Erdogan regime is destabilized.

He told CNBC: “It has pushed down the lira and the euro as well. This is bad news particularly for the banks in Europe.

“There are lots of European banks that are exposed.

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