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Euro Crisis Compared with US Subprime Mortgage Disaster

Euro Crisis Compared with US Subprime Mortgage Disaster

The debt crisis in Europe has been compared with the subprime mortgage disaster in the US, by the Bank of International Settlements (BIS).

The Bank, which is seen as being the central bank of global central banks, has issued a warning on the euro zone crisis saying that despite the avoidance of a collapse like that of the Lehman Brothers, the situation does not bode well for the financial system.

In a report made once a quarter, the BIS said that the trillion-dollar rescue package that EU leaders gathered together may only provide short-term relief.  This view is already shared by many international investors who have been avoiding European assets of late.

The report also said that the downgrade of Greece’s sovereign debt to junk status by Standard & Poor’s could have had “more in common with the start of the subprime crisis…than the collapse of the Lehman Brothers…”.

As austerity measures are installed in many European countries, to stem the flow of the crisis and to put economies back into a healthier state, people are taking to the streets in protest.  Over the weekend, large demonstrations took place in many areas, including in Germany and Italy. 

Tens of thousands of people – young and old alike – took to the streets with banners to make their feelings clear about the cutbacks that they are faced with.  In Berlin, the demonstrations hit a low point when a splitter bomb by a protestor was detonated in the middle of the crowd, injuring 15 police officers, two of them seriously.

Investor confidence around the euro zone has certainly hit sharp falls over the last few months, and this was highlighted in the BIS report.  According to the BIS, concerns about fiscal problems in the region have left many lowing their risk exposure and heading for assets deemed safe havens.