The first observations
Fourteen EU member states had a public debt exceeding 60% of GDP in 2010. These include 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 led to a first consequence: international rating agencies began 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 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 expenditures.
Who is responsible?
The responsibility of banks in this evolution is significant. Indeed, many renowned banking institutions (BNP Paribas, Belfius, Le Crédit Agricole,…) have purchased sovereign debt from heavily indebted states. These institutions speculated on the high interest rates offered by these countries while minimizing the risk of default. 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, down with them.
The reaction of member state governments was threefold: a refinancing of banks on the brink of bankruptcy. This refinancing was coupled with a quasi-majority stake by the states in the banks under supervision (nationalization) and, of course, as a result, increased state control over banking activities. These necessary interventions unfortunately have adverse effects on the real economy, notably a redefinition of credit policies.
The impact on credit
By the first quarter of 2012, the negative effects on economic activity are evident : a reduction in mortgage loans in France by 47%, a decrease in European car sales by nearly 27%, and in Belgium, an increase in the number of bankruptcies by 26%. In this area, it turns out that some companies going bankrupt actually have well-filled order books but can no longer access the credit market because banking institutions now practice strict and cautious policies.
In this situation, independent credit brokers, like Crédit Populaire Européen, could well have a fundamental role to play 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 offer traditional services (bank branch, savings account, current account). They are only specialized in granting credit and, not receiving 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 through ordinary traditional institutions.