The PIIGS are back.
Well, at least the ’P’ is back. Portugal’s stock market has dropped 17% in the last month, thanks to Banco Espirito Santo’s (BES) troubles.
BES is Portugal’s largest bank. Or rather, it was Portugal’s largest bank. Now it’s a penny stock. Investors began playing hot potato with BES stock when auditors discovered “irregularities†on the books of BES’ parent company. Things only got worse from there, culminating with the Portuguese central bank ordering BES to remove and replace its top executives.
Portugal’s problems reminded investors that Europe’s banking problems have not been fixed. The Eurozone still suffers from the same issues that caused its financial crisis. Namely, eighteen countries with diverse economies and divergent priorities are all trying to share one currency. That can’t work, no matter how hard the ECB wishes it will.
Today’s guest contribution comes from Martin Fluck, who’s studied and written about the global financial markets for 20 years. Below, Martin argues that the Eurozone appears to be slowly slipping back toward crisis… and tells us about an event approaching this autumn that could tip Europe’s fragile banks over the edge.
Dan Steinhart
The Stress Tests That Could Stress Markets
If you thought the Eurozone crisis was in the past, think again.
Last week, news that Portuguese bank Banco Espirito Santo was in trouble shook markets. Europe’s financial markets remain jittery, because its banking system is still fragile. Europe’s banks still haven’t repaired their balance sheets, so they’re not willing to lend to each other… never mind lending to small and medium-sized businesses.
The EU is publishing the results of its latest stress tests in October. It hopes the results will restore trust and boost lending to the private sector. But I think the tests might backfire and trigger a fresh crisis.
