Europe is at risk of reigniting the so-called 'doom loop' that has damaged the Greek economy so enormously, as Europe's banks continue to buy more of their own government's bonds despite the huge exposures between states and financial institutions. S&P ratings agency warns that since the past five years the banks have doubled their holdings of their own states' debt, despite promises over 2008 to cut back on the exposures. The issue is that when financial institutions invest heavily like this on one government's debt, they become dependent on the government's good performance, and the governments in turn rely on the banks to purchase the debt; if this falters, the consequences are dire.
Europe is at risk of reigniting the so-called 'doom loop' that has damaged the Greek economy so enormously, as Europe's banks continue to buy more of their own government's bonds despite the huge exposures between states and financial institutions. S&P ratings agency warns that since 2008 the banks have doubled their holdings of their own states' debt, despite promises over the past five years to cut back on the exposures. The issue is that when financial institutions invest heavily like this on one government's debt, they become dependent on the government's good performance, and the governments in turn rely on the banks to purchase the debt; if this falters, the consequences are dire.