Earlier today, my colleagues and I hosted a call on the outlook for the Eurozone. The replay is worth your time when you get a few minutes, but I wanted to flag two of the most critical components of the presentation, which were the slides that outlined the exposure of the German and French banks to the PIIGS.
I’ve posted them below, but they are worth printing off and taking into the next investment team meeting at your firm. This is the crux of Europe. Even the strong economies are only as strong as their banks.
- German banks have €69.7 billion in capital and have a combined €523 billion in PIIGS exposure (non-bank private sector, banks, and sovereigns); and
- French banks have €134 billion in capital and have a combined €671 billion in PIIGS exposure (non-bank private sector, banks, and sovereigns).
The interconnected web of European debt and monetary policy is going to be a behemoth to untangle.
As Milton Friedman wrote in 1999:
“Once the euro physically replaces the separate currencies, how in the world do you get out? It’s a major crisis.”
We are long the U.S. dollar in the Virtual Portfolio via the etf UUP.
Daryl G. Jones
Director of Research