StanChart, Barclays pull billions out of the eurozone as crisis looms

The slow motion train crash that is the eurozone banking crisis is not going to impact UK banks Standard Chartered and Barclays anything like as much as some of their rivals and in particular banks in Greece, Portugal, Spain, Italy and Ireland.

According to senior sources cited by the Daily Telegraph today these banks have radically cut the amount of unsecured credit they have outstanding with eurozone banks. It was the same in the 2007-8 global financial crisis when Barclays managed to arrange its own rescue package and Standard Chartered Bank never got into trouble at all, and other UK banks were nationalized.

Exposure cuts

Standard Chartered is a major player in the global currency markets and has reduced its overall exposure to the eurozone by some two-thirds in the past month, while Barclays has also slashed its exposure to the troubled European periphery nations.

Pundits have been queuing up recently to forecast the inevitable collapse of Greece and the repercussions for the eurozone.  Former Fed chairman Alan Greenspan said last week this eurozone banking crisis would cause a US double dip recession. The same thing happened in 1931 when the Credit Anstaldt collapsed in Vienna and triggered the second US banking crisis that heralded the Great Depression.

Not surprisingly eurozone banks have been struggling to fund themselves for the past few months, and if you think about it the actions by Standard Chartered and Barclays start to make this prophesy self-fulfilling.

Soros’ warning

George Soros has commented that eurozone governments are doing the wrong thing by trying to delay the final day of reckonning. This is probably what he means: by delaying the private sector banks will gradually remove their support until the European banking system collapses, whatever politicians decide and then they will have an even bigger mess to clear up.

The European Central Bank itself will end up bankrupt in this process, and the huge bailout required to recapitalize it will necessitate Greek-style public spending cuts across Europe as the lavishness of the welfare state simply becomes unaffordable.

How long this will take to come to a head is anybody’s guess but we seem now to be talking about months rather than years. The fudge of last year will not be rolled over for another 12 months.