Greece’s economic woes flared up in part because of the close links between its broken banks and the debt-laden government
by Tim Wallace
Europe’s banks are still buying more of their home governments’ bonds, even though the enormous exposures between states and financial institutions risk re-starting the so-called ‘doom loop’ that damaged the Greek economy so badly.
Banks have doubled their holdings of their own states’ debt since 2008, according to Standard and Poor’s, despite plans over the past five years to cut back on the exposures.
When banks invest heavily in one government’s debt, the banks become dependent on the government’s good performance, and the governments depend on the banks purchasing the debt.