Image by U-g-g-B-o-y-(-Photograph-World-Sense-) via Flickr
By Amy Wilson
Banks within the eurozone will suffer “considerable” loan losses in 2010 and 2011, which could amount to a further €195bn (£165bn) in write-downs, the European Central Bank (ECB) has warned.
Predictions of further potential writedowns are contained in the ECB’s latest Financial Stability report. The bank said that public finances posed the biggest threat to the eurozone.
“We are experiencing now a second wave of writedowns, which relate to the performance of loans,” said Lucas Papademos, the ECB’s vice-president.
The report came as May turned out to be the worst month for European stock markets since February 2009, because of fears of a sovereign debt crisis in the region.
The FTSE 100 lost around 365 points, or 6.6pc, in May – the worst monthly performance since the 7.7pc fall in February last year, during the depths of the global downturn.
Shares across Europe fell 5.8pc last month. Markets in London and the US were closed yesterday, but shares in continental Europe shook off the cut to Spain's credit rating on Friday, with stock markets rising 0.3pc.
Bond markets also largely took Spain’s downgrade in their stride. The spread between Spanish government debt and German government debt widened by seven basis points to 164 basis points, but analysts do not expect the gap to widen much further when UK and US markets re-open today.
Spain has found itself in the spotlight of investor concern over its sovereign debt, after a bailout of Greece was agreed last month.