Europeâ€™s banks, sitting on $1.19 trillion of debt to Spain, Portugal, Italy and Ireland, are facing a wave of losses if Greece abandons the euro.
While lenders have increased capital buffers, written down Greek bonds and used central-bank loans to help refinance units in southern Europe, they remain vulnerable to the contagion that might follow a withdrawal, investors say. Even with more than two years of preparation, banks still are at risk of deposit flight and rising defaults in other indebted euro nations.
â€œA Greek exit would be a Pandoraâ€™s box,â€ said Jacques- Pascal Porta, who helps manage $570 million at Ofi Gestion Privee in Paris, including shares in Deutsche Bank AG (DBK) and BNP Paribas SA. (BNP) â€œItâ€™s a disaster that would leave the door open to other disasters. The euroâ€™s credibility will be weakened, and it would set a precedent: Why couldnâ€™t an exit happen for Spain, for Italy, and even for France?â€
The prospect of Greece leaving the 17-nation euro region increased after parties opposed to the terms of the nationâ€™s second bailout by the European Union and the International Monetary Fund won most of the votes in May 6 elections. A fresh round of voting will be held June 17 after politicians failed to form a government. For the first time since the crisis began in November 2009, European leaders and central bankers are speaking openly of Greece abandoning the currency union.
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