Monday, October 27, 2008

Euro Bank Exposure to Emerging Markets

Tyler Cowen has a very interesting post on European bank exposure to emerging markets. Austrian banks, for instance, are exposed at a level of 85% of GDP, mostly to Hungary, Ukraine, and Serbia. Cowen's conclusion:

By the way, this is further evidence that the driving force behind the earlier boom was the global savings glut, and sheer giddiness, not the excessively loose monetary policy of Greenspan's Fed. The ECB has pursued a relatively tight monetary policy since its origin. It also will be interesting to see what trouble arises in Spain, since Spanish banking regulation has been considered a model of how to keep these problems under control.

3 comments:

Leo said...

I don't buy the argument on savings glut vs. Greenspan policy. First, the savings glut is in Asia and has been used to buy US Govt debt. Not in Spain. Let's note that the high savings economies in Europe, Germany and France don't figure in the Cowen list of lenders to emerging markets.

Also, higher US interest rates would have diverted more capital to the US.
I'm afraid Greenspan is not off the hook.

Unknown said...

Leo,
I don't think Cowen's point was to defend Bernanke. It was rather to suggest that wherever you look, you find large amounts of capital seeking higher returns than were available in safe bonds. Be it the American mortgage market or nascent Hungarian industry, hot money was looking for an increment. Rapid worldwide growth had not been matched by increased consumption, and the excess savings was looking for employment. Hence risk-taking increased.

Anonymous said...

^^ nice blog!! ^@^

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