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Handelsblatt: Fears for new bank crisis in Greece and Italy

The concern of investors for banks in southern Europe is peaking, as they fear a new crisis after the developments in recent days in Greece and Italy, says Handelsblatt.

"We are also faced with two local issues, but investors are nervous and the situation can escalate quickly," a Frankfurt-based banker told a German newspaper. The numbers speak for themselves, notes the report, referring to the 37 billion loss on the Milan stock exchange since mid-May for those who invested in Italian bank shares. Even more terrible was the data from Greece last week, he notes, referring to a 9% decline in the bank's index on Wednesday.

"The losses in Greece and Italy are a symptom of two different causes. In Greece, banks are trying to get rid of the enormous weight of "red" loans, and in Italy the aggressive government policy in the budget is putting pressure on financial institutions," the German newspaper continues. "Together, they fuel the fear of a new banking crisis in southern Europe," it notes.

"The biggest problem for Greek banks is credit risk. Loans not serviced or considered to be at such a risk amount to 88.6 billion euros, accounting for about 48% of all loans or about 50% of Greek GDP. This is not only the result of the eight-year recession. The carelessness with which Greek banks lent to consumers with dubious solvency - among them political parties and the media - is now punishing them. Most of these loans should be deleted," says Handelsblatt.

The German newspaper notes that Greek banks are committed to reducing "problem" loans to 88.3 billion euros by the end of 2018 and 64.6 billion euros next year, which is about 35%. However, unconfirmed information from economic circles indicates that now institutions want a more aggressive reduction. They want to propose to the ECB the reduction of the "red" loans by 60% by 2021 to 35-40 billion euros, a message that caused the dramatic losses on Wednesday, the newspaper continues.

Handelsblatt notes that after the dramatic escalation of the past week, the Greek government is working on a plan to alleviate the banks. Still, investors are cautious, because so far the details have not become known. "Under the new, more stringent EU regulations, there can no longer be a bad bank with funding from the government buying the "red" loans from the banks," the paper continues, adding that the Financial Stability Fund has a similar plan the one that helped the Italian banks, which at the end of 2017 had "red" loans totalling 86 billion and which now are only 40 billion.

As for Italy, the populist government coalition is against Brussels, as it wants to finance its expensive pre-election promises, which could have negative consequences for the country's banks.