The financial crisis erupted in Europe in the course of 2010. It took on alarming proportions in 2011 and now threatens to implode the European economic space. The origin of the financial crisis lies in the worrying evolution of public deficits and especially in the European governments’ desire to curb this alarming trend.
The first findings
Fourteen EU member states had a public debt exceeding 60% of GDP in 2010. These are Greece (124.9%), Italy (118.2%), Belgium (99%), Portugal (85.8%), France (83.6%), the United Kingdom (79%), Hungary (78.9%), Germany (78.8%), Ireland (77.3%), Malta (71.5%), Austria (70.2%), the Netherlands (66.3%), Spain (64.9%), and Cyprus (62.3%).
This observation has led to a first consequence: international rating agencies are starting to focus on the ability of member states to honor their sovereign obligations. Thus, France and Belgium have recently lost their famous triple A, and the long-term prospects are mostly negative for many member countries. This means that interest rates for member states could rise and increase the burden on states to finance themselves on the market and complicate the financing of the deficit between national revenues and expenses.
Who is responsible?
The responsibility of banks in this evolution is significant. Indeed, many renowned banking institutions (BNP Paribas, BelFius, Crédit Agricole, etc.) have bought sovereign debt from heavily indebted states. These institutions speculated on the high-interest rates offered by these countries while minimizing the risk of bankruptcy. However, it turns out that some countries may not be able to honor their obligations (like Greece) and drag their creditors, i.e., the lending banks, into their downfall.
The reactions of the member states’ governments have been threefold: refinancing banks on the brink of bankruptcy. This refinancing was coupled with a near-majority stake by states in the banks under their control (nationalization) and, of course, increased state control of banking activities. These necessary interventions unfortunately have harmful effects on the real economy, notably a redefinition of credit policies.
The impact on credit
As early as the first quarter of 2012, the negative effects on economic activity were evident: a reduction in mortgage loans in France by 47%, a decrease in European car sales by nearly 27%, and an increase in the number of bankruptcies in Belgium by 26%. In this area, it appears that some companies going bankrupt still have well-filled order books but can no longer access the credit market because banking institutions now apply strict and cautious policies.
In this situation, independent credit brokers, such as Crédit Populaire Européen, may well play a fundamental role in the continuity of the real economy. Indeed, Crédit Populaire Européen works with banks specialized in credit (Elantis, Krefima, Record, etc.). Some of these banks do not even offer traditional services (bank branches, savings accounts, current accounts). They are only specialized in granting credit and, since they do not receive savings, they do not speculate either. In other words, the financial crisis has not changed their approach to credit.
At Crédit Populaire Européen, we believe that credit brokers are now able to offer easier access to credit than ordinary traditional institutions.
