The debt of the euro area countries is “a ticking time bomb” for the European economy, and more serious consequences will be experienced next year, according to a report quoted by British newspaper The Telegraph. European banks will have a shock by the end of this year, when they will prepare their balance sheets and will find out that they should continue to cut credit supply to companies and consumers, according to an Ernst & Young study. The real impact of the debt crisis will be really felt in 2013, reports The Telegraph.
Ernst & Young says that banks will reduce their spending balance as a result of transfer of assets and credit contraction – a more pronounced decline than during the crisis. As a result, the report showed that companies’ borrowing will drop by 4.8% in 2012, while the percentage of consumer loans will decrease by 6.6%, the slowest pace of lending in the euro area. Moreover, year 2013 looks more gloomy than we can imagine. State debt crisis is already in effect throughout Europe, but will soar next year, according to the department of euro area financial services at Ernst & Young. Bad loans in monetary union – closer to default – will drop to 6.5 percent, setting a record for the euro.
“The deterioration of the economy and investor distrust in European markets will affect the balance sheets this year, but the real impact will be felt in 2013, when bad loans will hit us more than we expected”, says Andy Baldwin , an analyst at Ernst & Young. “Bad loans are a ticking time bomb for the euro area economy,” added Marie Dixon, a financial consultant at Ernst & Young’s. “Large firms will find themselves unable to manage balance of payments or access alternative sources of financing, but small businesses will be able to move forward, struggling,” says Dixon.
Meanwhile, France said today that it has to reduce spending by tens of billions of euros for fiscal year 2012-2013. The government in Paris has to identify new revenue and spending cuts of up to 43 billion euros to meet commitments on budget deficits for 2012 and 2013, according to a report of the Court of Audit, commissioned by the French executive. For the current year, the government must obtain additional income and savings of 6-10 billion euros in order to meet the commitment of France to the EU on reducing the budget deficit from 5.2% last year to 4.5% this year, according to the report.
Reply