Community institutions and European governments yesterday sent a message of calm to public opinion in the face of the bankruptcy of Silicon Valley Bank in the United States and the volatility that these movements have caused in stock markets around the world. There is no risk, they say, that the financial crisis will cross the Atlantic as happened in 2008 with the bankruptcy of Lehman Brothers. “There is no risk of direct contagion and the possibility of indirect contagion is something that we must monitor but right now we do not see a significant risk,” said the European Commissioner for the Economy, Paolo Gentiloni, who welcomed the initiative taken by the Biden Administration for a express rescue of SVB bank.
Eurogroup President Pascal Donohoe was just as forceful. “There is no direct exposure” and “the problems derive from the specific model of the SVB. The picture here in Europe is very different. Our banks are generally in good shape, they have been strengthened in recent years and are subject to national and European supervision”, he pointed out at the end of the meeting of the euro zone economy ministers held yesterday in Brussels while the stock markets, in especially the actions of the banks, were dyed red.
“The SVB has very specific circumstances, the situation in Europe is very different and, thanks to the changes in recent years, our banks have a high level of liquidity,” Donohoe insisted at the close of the markets. But this news “is a reminder of how quickly things can change and how new events can occur,” he added, evoking the need to continue strengthening the system’s resilience and moving forward with the European banking union.
Spanish Vice President Nadia Calviño drew one more conclusion from the new situation. Asked about the upcoming price increases announced by Frankfurt, she called for “everyone” to act with caution, including public and private agents and those responsible for European fiscal and monetary policy. “At this time it is necessary for all of us to act with the utmost prudence. I think I’m being clear,” she emphasized. Calviño reiterated her confidence in the situation of Spanish entities, which are facing the current turmoil with “healthy” balance sheets and a reinforced supervision and regulation framework.
The rest of the European ministers also minimized the risk of contagion. “Our situations are very different,” said the representative of France, Bruno Le Maire. “When you look at the financial model of BNP Paribas, Société Générale and other French banks, they are radically different from the SVB model,” he said of the bankrupt entity, the Silicon Valley startup banker. “We note that the American government and financial institutions have reacted with determination,” celebrated the German Finance Minister, Christian Lindner.
However, Michael McGrath, representative of Ireland, a country closely connected at all levels with the United States and with bitter memories of the 2010 financial crisis, was more cautious. “It is still too early to see the real consequences of the collapse of this bank. It will take a while to do a full estimate,” he said. “There are many business clients of SVB in Ireland, so the Department of Finance, the regulator and the Central Bank are meeting to assess the impact” of the collapse of the Californian entity, which was collaborating with the Irish Strategic Investment Fund to support startups in this country.
What is already known, McGrath added, is that “financing costs for Ireland and other EU countries have risen recently and this reminds us of the importance of managing public finances carefully.”
