Euro sovereign debt problems pour over into banking system

A Greek flag is covered with one euro coins.

Jeremy Hobson: The first question at the BBC's Business news meeting this morning was: has the European Debt Crisis Turned into a banking crisis? The immediate focus is on the Brussels-based bank Dexia, which is on the verge of being broken up because of its exposure to bad European debt. Leaders here are concerned about the troubles at that bank spreading to other banks. They're now talking about shoring up the big European banks in a coordinated way.

For more, I'm joined in the studio by BBC business correspondent Mark Gregory. Good morning.

Mark Gregory: Good morning.

Hobson: So is this turning into a banking crisis?

Gregory: Yes it is. It started out as a sovereign debt crisis -- governments of weaker eurozone economies like Greece, Portugal and Ireland had essentially borrowed too much money. But as the risk that they might actually default grows, it becomes a problem for the lenders -- the people who lent them the money -- which are Europe's banks. So we've now -- it's a bit like a kind of Lehman Brothers moment for Europe. There are all sorts of as-yet undisclosed losses out there in the European banking system, and a lot of people are very, very frightened indeed.

Hobson: And when you speak to the BBC's correspondents around Europe, do they care, for instance, in Italy about what's going on at this Belgian-French bank Dexia?

Gregory: Yes they do, because they're worried that there might be very similar problems going on at banks in Italy and Spain and other European countries that we don't know about yet. And the other problem, of course, is this is beginning to affect the real economy. Because while these banks are worrying about their losses, they're not dishing out loans to small business and the people that keep the economy ticking -- consumers. So there's a danger of, what starts out as a banking crisis becoming an economic crisis because the financial wheels simply seize up.

Hobson: The BBC's business correspondent Mark Gregory. Thanks Mark.

Gregory: Thanks.

About the author

Jeremy Hobson is host of Marketplace Morning Report, where he looks at business news from a global perspective to prepare listeners for the day ahead.

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