Banks in France on shaky ground?
German Chancellor Angela Merkel speaks with French President Nicolas Sarkozy after a meeting of the Group of Eight in L'Aquila, in central Italy.
STEVE CHIOTAKIS: So we've talked about Wall Street. Let's move over to Europe which is also seeing some
wild swings. Here's why -- major banks in France -- the world's fifth largest economy. There are reports of possible bank runs and even an Asian bank cutting off lending to French financial institutions. A lot going on there.
And the BBC's business reporter Theo Leggett has been covering the markets story all day from London. Hi, Theo.
THEO LEGGETT: Hi, Steve.
CHIOTAKIS: European stock markets have been on -- gosh, this roller coaster ride today. Stock markets, obviously all over the world, have been for the past few days. What's going on over there, specifically?
LEGGETT: Well, at least today we're not seeing the kind of panic that we saw in late trading in Europe and also on Wall Street yesterday. What we saw today was shares rebounded in the morning trading, but then fell back just as quickly -- now they're kind of treading water. The real concern seems to be fears about the health of European banks, and in particular, banks in France.
CHIOTAKIS: And why are banks in France so important to people around the world, and particularly to people in the United States?
LEGGETT: Well, the banking system is connected through Europe and indeed, throughout the world. The problem for French banks, is that they're holding a lot of debt owed by Italy and by Spain. These two countries, in Europe, under a lot of scrutiny at the moment. There are fears that they may not be able to pay what they owe. Now, if that were to happen, these banks in France would be left holding a very big bill. They would lose a great deal of money. And then people who lent to them would lose money. And we would have the prospect of something very similar to what we saw in 2008 when there was a financial meltdown. When banks refused to lend to one another. Credit dried up -- nobody could get a loan and economies around the world suffered as a result.
CHIOTAKIS: Why is this coming to a head today, Theo?
LEGGETT: Well, it's hard to tell. The markets have been in such a febrile mood over the past few weeks, it seems almost any rumor can set off a wave of selling. And that's what we saw yesterday. There were rumors focusing on France's ability to pay its own debt, its national credit rating, if you like, and other rumors focusing on Societe Generale. One of the big banks, suggesting it was in financial difficulty. All of these rumors were very quickly denied, but they spread through the markets like wildfire. There was an atmosphere of fear and as a result we saw a very big sell-off. And once the sell-off begins, it's very hard to stop it.
CHIOTAKIS: The BBC's business reporter Theo Leggett in London. Theo, thank you.
LEGGETT: Thanks very much, Steve.