Kobsak: Europe's banks a concern

  “The worst of the euro-zone crisis has yet to be revealed,” said Kobsak Pootrakool, executive vice president of Bangkok Bank. An adverse impact is expected on exports, the stock market, gold price and baht, he said.
But there are also opportunities for investors to shop for good assets in Europe – such as brand-name businesses and know-how – if they wait for a while until prices bottom out, he told a press briefing hosted by Krungthep Turakij newspaper.
The euro zone would face a second financial crisis in the near future as Greece, Portugal and Ireland are unlikely to solve their debt crises soon, Kobsak said.
Greece is unlikely to show a budget surplus in three years as expected by the International Monetary Fund and European Central Bank (ECB), which have provided the country a second bailout package. Without a budget surplus, Greece will not be able to service its huge debts and may need to borrow more, he said.
Although the ECB has injected US$1 trillion (Bt31 trillion) into banking systems and troubled governments, investors are still worried that the contagion will reach Spain and Italy, which are core economies of the European bloc. Spain suffers large current account deficits and high unemployment of 24 per cent. High current account deficits would cause serious trouble, causing capital to swiftly flow out of the country. Spain does not have enough international reserves to repay creditors, Kobsak said.
Large capital inflows had created a property bubble but now the real estate industry there has turned into non-performing loans for banks. There are a lot of ghost towns in Spain now, he said, adding that the public debt crisis in Europe has hurt banks and the real economy.
“The biggest concern now is the solvency of European banks as they have accumulated toxic assets such as the bonds of troubled governments,” he said. Germany and France have to provide financial support to troubled countries because they are worried that their banks will collapse if they are not generous to Greece.
Banks in Europe this year have sold off their assets in Asia to recoup US dollars for debt payment, sending stock markets in Asia tumbling recently. European banks and the ECB have also sold gold for US dollars, causing the gold price to sag.
As investors are panicking, they are holding more greenbacks, a safe-haven asset, causing the euro and Asian currencies to wobble, Kobsak said.
Greece is unlikely to survive and it may have to wave goodbye to the euro. The other option is to weaken the euro but Germany and France prefer a strong currency.
A second crisis in Europe would throttle the exports of Asia, including Thailand, as Europe absorbs about 20 per cent of Asia’s exports, he said.
However, it will not be as bad this time around as during the 1997-98 global financial crisis, according to Kobsak. Thai exports sank by 40 per cent in 2009. Some countries in Europe may face a loss for a decade as Japan experienced in the 1990s – a decade of economic stagnation, he added.
Teerana Bhongmakapat, an economics professor at Chulalongkorn University, told The Nation that Europe is entering a second recession. Some countries would face a double dip in their economy, the professor said.
Greece is likely to leave the euro zone temporarily as voters cannot stand austerity measures. It might be a good idea to return to its currency unit, since a weaker currency would boost exports and tourism. Rich countries such as Germany and France have preferred a strong euro since they export capital, but Greece needs a weaker currency, so they cannot stay together, Teerana said.
“If Greece is going to choose this path it will lead to a debt moratorium. What’s unclear is how it will affect debtors,” he said. Another issue is whether the European bloc will fall apart in case other countries follow Greece’s exit.
Greece then may need many years to rehabilitate its economy before it can rejoin the euro zone.
Some countries have more options, such as Spain, which can use a stimulus programme to boost growth, since its household debts are not high and its foreign debts are low, he added.