What is the effect on banks from a shift to technocrat government?
In a quite negative comment Fitch, a ratings agency note that US Banks will suffer from any additional deterioration in Euro sovereign debt circumstances. This is a classic statement of the obvious. It is hard to criticize further because it is behind a paywall.
Though U.S. banks have manageable direct exposures to the stressed European markets (Greece, Ireland, Italy, Portugal and Spain), further contagion poses a serious risk, according toFitch Ratings in a new report. Fitch believes that unless the Eurozone debt crisis is resolved in a timely and orderly manner, the broad credit outlook for the U.S. banking industry could worsen.
Relevance to Bankwatch:
There is a deeper change occurring here, and it might well be a precursor to what could happen in other countries.
Italy and Greece have passed on the management of the economy from the elected politicians to technocrats. Technocrats are academics and basically smart people who have the best interests of the country / area in mind. We are talking here about emergency management.
Emergency management has been deemed necessary because the government cannot agree on an approach to solve the countries solvency problem. They are spending more than they take in, and the right/left parties cannot agree that income should exceed expenses. So they back off and agree to allow non elected ‘technocrats’ to run things until it gets resolved.
Political comments aside, this could mean that banks are actually in a better position and can see clear direction based on rational decision making rather than political.
What is interesting is now that Greece and Italy have been forced into effective bankruptcy, which countries will be next, and how will that affect their banks.
Now that those countries have taken this approach, it’s a given that others will follow. How far will the technocratic (non elected, academic) go?
Time will tell and more analysis on this question to come.