James Saft is a Reuters columnist. The opinions expressed are his own.
A sharp cut back in lending by euro zone banks in their scramble to raise capital will prove an important channel spreading pain from the vulnerable single currency area to the rest of the world.
Though the euro-induced credit crunch will be less important than the outright effects of the euro zone recession, in some areas, like trade finance, and in some regions, such as emerging Europe, the impact will be felt far more quickly.
“They are being asked to increase their capital base. You can go and raise capital or you go and get a government handout or you shed assets. Raising assets will be very, very tough.”
Euro zone banks will be cutting back on foreign exposure, either out of prudence or under pressure from their regulators.