Europe Could Trigger the Next Financial Crisis
You should be paying close attention to Europe. That’s where the next financial crisis could begin before spreading throughout the global economy.
Oftentimes, American investors forget that the global financial systems are severely interconnected. A problem in Europe won’t be contained, with potential consequences across the globe.
Why Europe? Because it’s going through some very interesting times, with a lot going on that could impact the financial system.
Brexit Uncertainty Could Cause Much Volatility
The U.K. is currently struggling to figure out Brexit details.
Prime Minister Theresa May recently announced her resignation because she can’t get a consensus within parliament regarding Brexit.
The uncertainty around Brexit could have an impact on the financial sector. The entire European Union could be shaken if something unpredictable happens. This won’t be good for the banks in the region, either.
Eurozone Banks Remain in Trouble
The eurozone, the common currency region, is still struggling with major debt problems.
Just look at the Italian banks, for example, where there still isn’t a clear figure for how much debt there really is.
It’s similar for German banks, specifically Deutsche Bank AG (NYSE:DB), which is facing hardships and an uncertain future. DB stock is currently trading at several-decade lows. Sadly, there’s more. Deutsche Bank owns a lot of derivatives, so if the bank defaults, there could be additional problems.
The bank has tried everything to turn things around with little success. Recently, Chief Executive Officer Christian Sewing said that the bank is “prepared for tough cutbacks.” (Source: “Deutsche Bank flags ‘tough cutbacks’ as shareholders grumble,” Deutsche Welle, May 23, 2019.)
Could a Eurozone Breakup Become Reality?
There’s a movement brewing in the eurozone that’s calling for its breakup. This movement has been gaining a lot of popularity over the past few years. And if the economic slowdown in the region continues, it could gain even more traction.
The breakup of the eurozone and end of the euro may not be the most favorable thing for the global economy and the financial system. The eurozone is a major economic hub and things could be a lot different once the euro is not around.
What Happens if Europe Triggers a Financial Crisis?
I don’t mean to be the bearer of bad news, and I am not rooting for a financial crisis. However, in my opinion, the conditions in the Europe are worth watching closely. They appear to be worsening and could lead to something really bad.
I will end with a bold statement: a bank failure in Europe shouldn’t be ruled out just yet. There are too many problems and uncertainties that could make it possible. And if there’s a major bank failure in Europe, it could trigger a global financial crisis.
A problem in Europe may not just be a problem for Europeans. We could see the global derivatives market face scrutiny, with stock markets falling and global growth stalling.