A new financial crisis after Brexit vote?
Two weeks after the Brexit referendum the first signs of another financial crisis in the UK and the EU are emerging: the British pound has plunged, investors are withdrawing from UK property funds and bank share prices on the Continent are falling. Commentators sound the alarm and call for measures to prevent a shock like the 2008 crisis.
Italy's banks pose a threat to the Eurozone
Italy's banks in particular represent a threat to the Eurozone, the business daily Kauppalehti warns:
“The problem is that many Italians have invested in bank bonds without understanding the risks they entail. Renzi doesn't want to annoy the people, particularly not before this autumn's referendum on the new constitution. Renzi has promised to resign if he loses it. He called for the EU rules to be kept flexible so that Italy can use public funds to capitalise its banks. … The EU is not keen on Renzi's proposal. … A solution must be found for the problems of the Italian banks, preferably a national solution. … Europe can't afford another bank crisis. … The consequences for Italy and the Eurozone if Renzi loses the autumn referendum don't bear thinking about.”
Banking union lacks stable foundation
Although the Eurozone now has new instruments for dealing with a new bank crisis an important link in the chain is missing, warns Corriere della Sera:
“The institutional reform of the monetary union doesn't seem to have helped matters. Its central management was moved to Frankfurt and put in the hands of the European Central Bank. A committee for the resolution of European banks was set up in Brussels. … But there is still a fundamental imbalance which deprives the entire architecture of the euro of a solid foundation: all the competencies have been transferred from the individual states to the headquarters. But if Frankfurt pushes for the banks to be strengthened or liquidated and the markets refuse to make fresh capital available, the states' hands are tied. What is lacking is a common resolution fund, which Germany rejects out of fear that it will be made to pay for other countries' problems. So the banks remain fragile and the system crippled.”
Europe's banks facing collapse
The drop in the share prices of Italian and Spanish credit institutes as well as German banks is clearly a result of the Brexit vote, the business daily Il Sole 24 Ore contends:
“The Brexit propaganda in the run-up to the British referendum tried to persuade voters that everything would stay the same after leaving the EU. But the financial markets took a different view. The fact that the British pound has tumbled to a 31-year low, the Bank of England has eased lending to businesses and households and five property funds have halted trading in shares testifies to that. Unfortunately, the epidemic has spread across the English Channel. While the shares of Italian banks were the easiest prey, the markets quickly grasped that this is a pan-European problem. … Eight years after the global financial crisis began it's time for Europe to grasp the true dimensions of the banking crisis and take appropriate action - as quickly as possible.”
EU must not follow British into crisis
Given the growing dangers on the financial markets politicians in both the UK and the EU must take immediate action, Libération demands:
“Apart from the technical emergency measures there can only be one response to this threat: a clear position on the part of politicians, one that provides a reliable frame of reference for economic agents. ... The British leaders must finally activate the exit mechanism and clarify the course of events as quickly as possible. As for the Europeans, they must adopt a coherent policy, without which they will be unable to manage a new crisis - should it arise. The English are free to take the road to perdition if they like. But nothing's forcing us to follow them.”
Brexit pyromaniacs to blame for panic
Now we see the extent to which the Brexit camp dealt in false promises, Le Figaro laments:
“For now such events are rare, relatively limited in scope, and haven't sparked the much-feared domino effect. Nevertheless they testify to the fragility of the markets, which the ECB supports by making huge amounts of liquidity available in Europe and ensuring zero interest rates. But it stares you in the face: this is the fault of the Brexit pyromaniacs, who hid this truth from electors. What they presented as a formality that would usher in an era of prosperity for the UK in fact hails the start of an economic recession and financial crisis. This should be a warning to all those who want to try out this experience elsewhere.”