Global Financial Crisis: Dexia bailout a sign of things to come?

In the latest sign of the global financial crisis,
the “too big to fail” mentality American banks made popular two years ago
has officially migrated to Europe.

Dexia, the French-Belgian banking giant, has done
what was once thought impossible: It failed.

The French and Belgian governments pledged on
Tuesday to bail Dexia out. Not surprisingly, the bailout is sparking
fears that Dexia is just the first of many big-bank dominos to fall in
Europe, which would of course only make the ongoing global financial
crisis worse.

Similar rescue plans are reportedly in the works
at banks all over Europe. Having apparently failed (there’s that word
again) to learn anything from the U.S. financial crisis in 2008, many
European banks are up to their eyeballs in debt.


Bloomberg reported today
that European Union antitrust commissioner Joaquin Almunia
said that European governments should consider bailing out banks “as the
last resort” if the market won’t give them the level of capital they
need. That “last resort” may come sooner rather than later. Signs of a
global financial crisis are everywhere in Europe this week:

  • Moody’s downgraded Italy’s bond rating by three
    levels on Tuesday.
  • Greek debt is worsening, as the Greek government
    has said it is unlikely to make its deficit reduction targets on
    time.
  • Deutsche Bank of Germany announced that it will
    cut 500 jobs.
  • Spain and Portugal also appear to be inching
    toward a collapse.

Germany in particular has been preparing for mass
bailouts. According to a

Bloomberg article from last
month
, the German government is making
bank bailout plans in case the Greek financial crisis worsens. German
chancellor Angela Merkel is meeting with officials from the International
Monetary Fund and World Bank today, presumably to discuss future stimulus
plans.

This is not all bad news – unless you’re a
taxpayer in one of the affected European nations, of course. The fact
that the French and Belgian governments are intervening to save Dexia
from collapse, and thus safeguard its depositors and creditors, is
encouraging. It isn’t the first time Dexia has had to be saved, either.
Those governments also bailed out Dexia back in 2008, when the global
financial crisis first reared its ugly head.

Despite being a repeat offender, Dexia doesn’t
seem to be a rogue bank that can’t get its act together. There are plenty
of banks like it that are highly exposed to Greek debt and other
struggling European nations.

Rather, the Dexia bailout is merely the latest
sign that the global financial crisis continues to spread throughout
Europe. No one knows exactly where it will go next – or when it will end.
But what is clear is that the financial crisis is keeping investors on
edge, and global stock markets trading in volatile swings.

Published by Wyatt Investment Research at