‘Detroit goes bust, Europe foots the bill’

Published on 23 July 2013 at 14:15

“Detroit goes bust, but Europe foots the bill,” sums up the Italian daily Il Sole 24 Ore now that several big European banks have been left holding big chunks of bad debt after the US city of Detroit filed for bankruptcy on July 18.

The French financial daily Les Echos explains that several European banks, including Swiss bank UBS, the nationalised Franco-Belgian lender Dexia and the nationalised German bank Hypo Real Estate, hold unguaranteed debt from Detroit, even though Motor City in Michigan has long been deemed a municipality at risk.

[They] apparently underwrote the equivalent of $1bn (€758m) in ‘certificates of participation’, which are now liable to lose all their value. That underwriting promised to be lucrative [...] since Detroit would have had to pay $627.2m in [total] interest over 20 years to the group of European banks led by UBS.

But how did the Old World banks get entangled in this meltdown? The fault lies in the “disease” of “shadow finance”, believes Il Sole. For the Italian business daily –

Receive the best of European journalism straight to your inbox every Thursday

The dismantlement of shadow finance was supposed [...] to be a strategy coordinated between at least two major traditional economic zones – the US and Europe – to keep systemic effects from being unpredictable and ambiguous. The exact opposite of what is now coming to pass, since these zones, as well as the individual [member] countries, tend to go it alone in matters of regulatory reform.

Tags

Was this article useful? If so we are delighted!

It is freely available because we believe that the right to free and independent information is essential for democracy. But this right is not guaranteed forever, and independence comes at a cost. We need your support in order to continue publishing independent, multilingual news for all Europeans.

Discover our subscription offers and their exclusive benefits and become a member of our community now!

Are you a news organisation, a business, an association or a foundation? Check out our bespoke editorial and translation services.

Support independent European journalism

European democracy needs independent media. Join our community!

On the same topic