Greek Exit Could Trigger a Run on European Banks

A Greek exit from the euro could cripple banks across Europe
Riot police pass outside the main building of the Bank of Greece during clashes in Athens Photograph by Petros Giannakouris/AP Photo

European banks have spent the past two years increasing capital buffers, writing down Greek bonds, and using central bank loans to refinance regional operations in southern Europe in anticipation of some cataclysmic event such as a Greek withdrawal from the euro. All that preparation may not do much good. With more than $1.2 trillion in Spanish, Portuguese, Italian, and Irish debt, Europe’s lenders still face deposit flight risk and rising defaults elsewhere. “A Greek exit would be a Pandora’s box,” says Jacques-Pascal Porta of Ofi Gestion Privee, an asset manager in Paris. “It’s a disaster that would leave the door open to other disasters. The euro’s credibility will be weakened, and it would set a precedent: Why couldn’t an exit happen for Spain, for Italy, and even for France?”

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