Crashed: How a Decade of Financial Crises Changed the World

by Adam Tooze

Confidence in funding markets had not recovered from the shocks they had suffered since 2007. A shock to confidence in the eurozone might lead to a general withdrawal of funding. What was at stake was not just Greece, but the far larger network of cross-border debt, in which France’s stake, like that of other rich country lenders, was truly enormous. Altogether, foreign bank lending to what became known as the eurozone periphery—Greece, Ireland, Portugal and Spain—topped $2.5 trillion. Of that total, France’s banks had c. $500 billion at stake and Germany’s banks had roughly the same. Most of that lending and borrowing was not to governments. Spain and Ireland had been swept up in the gigantic real estate inflation that was now painfully deflating. In Spain, in particular, there was reason to fear for the stability not of the government’s finances but of local mortgage lenders. Beyond the periphery, what was even more worrying was Italy’s public debt. Italy’s budgetary situation was far more tightly controlled than that of Greece’s. Indeed, prior to the crisis, it had been running primary surpluses (ahead of debt interest payments). But its debt level was worryingly high, and in May 2008 the Italian premiership had been taken by Silvio Berlusconi, who, despite his business credentials and his conservative coalition partners, was regarded as a dangerous opportunist. No one wanted the flames of panic to leap to Italy. Beyond Italy was Belgium and then France itself.