The Risks Are in the Eurozone Banks But Beware of Global Contagion

QUESTION: Sir,
Given the liquidity crisis and the problem to arrive from Europe, I have a question for us Europeans:
when you are talking about Europe and failures to come, you mean:

1. euro zone countries ONLY?
2. EU countries which still hold their currency (eg. Romania)?
3. what about the UK?

Thank you.
SM

ANSWER: The policy of a bailout will be carried out by the central bank. Those members of the EU who are NOT in the Eurozone will fair much better than the Eurozone banks. This is one reason countries should NOT join the euro at this time.

However, there will be risks for non-Eurozone banks deeply involved in derivatives. They will probably have exposure that can lead to losses emerging from the Eurozone which is rejecting a bailout policy. This could lead to a global contagion that will result in a major political backlash against the EU.

 

 

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