National Fragmentation of Credit in the Eurozone

In a Bloomberg article that details how banks in the eurozone periphery have begun carrying increasing proportions of the debt issued by their own nations’ governments (while banks in the core have reduced their holdings of peripheral sovereign debt), Dimitri Papadimitriou comments on some of the consequences of this “national fragmentation of credit”:

“If there’s a private-sector restructuring of Portuguese sovereign debt, then Portugal’s banks will need a bailout like Greek banks did,” Dimitri Papadimitriou, president of the Levy Economics Institute at Bard College in Annandale-on-Hudson, New York, said in an interview.

In Spain, stronger banks such as Banco Santander SA (SAN), the country’s largest lender, can handle losses from their sovereign holdings, while weaker savings institutions stung by soured real estate loans will need help, Papadimitriou said. Italian banks probably are buying more of their country’s debt because they can sell it to retail customers who still have an appetite for the securities, he said.

Read the article here.