Citigroup warns of fresh wave of bank failures in Europe

Wednesday, December 22, 2010
By Paul Martin

Citigroup has warned of a fresh wave of bank failures and sovereign defaults in Europe unless EU leaders come up with a credible response to the crisis.

By Ambrose Evans-Pritchard
Telegraph.co.uk
21 Dec 2010

Prof Willem Buiter, the bank’s chief economist, said the eurozone was paralysed by a “game of chicken” between the European Central Bank and EMU governments.

Both sides are trying to shift responsibility on to the other for shoring up southern Europe and Ireland, raising the risk of contagion spreading. “The market is not going to wait until March for the EU authorities to get their act together. We could have several sovereign states and banks going under. They are being far too casual,” he said.

Mark Schofield, Citigroup’s global head of interest rate strategy, said Portugal would need an EU rescue soon and that it was “highly likely that Spain will go the same way”. This risks overpowering the €440bn (£373bn) bail-out fund.

“Restructuring of some sovereign debt is inevitable. There is a chance that Spain could still make it, but the debt trajectory looks unsustainable if a broader EU-wide solution isn’t found,” he said.

The warnings came after Moody’s said it might downgrade Portugal’s A1 rating by one or two notches on growth worries, but said the country’s solvency was “not in question”.

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