French banks’ health shake global markets as crisis flares up

Alfred Kola

NEW YORK - Another downturn in the global stock markets is in sight due to the doubts surrounding the health of French banks and Germany’s signs of reluctance to further help Greece avoid default.
A revision of Greek economy’s performance found that it is shrinking much more sharply this year than previously anticipated. The prediction now is 5.3 percent rather than the 3.8 percent forecast in May.
Slower growth could make it harder for Greece to pay its debts, even as it tries to reduce them by cutting government spending and raising taxes.
Investors are showing signs of frustration in face of a possible ratings downgrades by Moody’s Investors Service of France’s three largest banks, BNP Paribas, Société Générale and Crédit Agricole, whose shares were among the biggest losers last week. The biggest banks in Europe, especially in France, hold billions of euros’ worth of Greek bonds, and investors fear even a partial default by Greece would sharply diminish the value of those assets, eroding already weak capital positions.
American financial institutions, typically heavy lenders to French banks,  might be affected by the weakening of the latter’s financial position
If the French banks are indeed downgraded, it would underscore the inefficiency of the European officials to manage the Greek crisis, despite two bailout packages totaling more than 200 billion euros ($272 billion).
Another factor is contributing to the deterioration of the state of global finances around the world. Germans are suspicious that Greece is really sticking with the austerity goals it agreed to follow in order to qualify for the aid. Therefore, they are not willing to more handouts, despite repeated pledges by Chancellor Angela Merkel  to keep Europe together.
Greek government seems determined to go ahead with its plan to cut further public spending. “This is a battle for the country’s survival,” Prime Minister George A. Papandreou told a news conference in the northern port city of Salonika on Sunday. “These measures are the supplies we need to fight.”
But many doubt that these measures will improve Greece’s position anytime soon. There are mounting suspicion that the bailout to avoid default will indeed pan out.