The Euro crashed to one a year low on Monday driven by a collapse in the Turkish Lira.
European banks have a huge exposure to Turkey and with a weak Lira, the money owned in Euro to these banks gets a lot more expensive for its Turkish debtors. The questions is, are they now in a position to pay it back or are we looking at mass defaults?
Spanish banks are owed $84 billion, French banks, $38 billion and Italian lenders $17 billion.
The markets move or don’t move based on “certainty” or “uncertainty”. What actually happens is not relevant at this point in time.
Fear is the driver! Potential catastrophic news for European banks means bad news for their share prices and bad news for the EURO.
The Turkish Lira has fallen by over 40% this year. Borrowers have to convert their lira to euro to pay back their loans and with this type of negative exchange movement these borrowers are in big trouble.
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