German Lending to Periphery Drying Up

According to an article in the

, lending by German banks to weaker areas of the Eurozone has fallen by a fifth since January and is currently at the lowest level since 2005. The FT reports that "Between January and the end of May, German banks cut their net lending to Greece, Ireland, Italy, Portugal, and Spain" by 55 billion euros to a total of 241 billion euros. The data comes from a Morgan Stanley analysis of Bundesbank figures. The data suggests growing fears of a potential Eurozone breakup. The FT reports that such an outcome could "lead to capital controls in existing countries as well as regulatory pressure on banks to reduce their reliance on wholesale funding and match their local lending more closely to their local deposits." Morgan Stanley analyst Huw van Steenis said, “We're concerned the balkanization of banking markets will act as a drag on lending, economic recovery and be a source of systemic instability." The FT also said that the fragmentation in lending is "contributing to the growing split in the fourtunes of the various parts of the Eurozone."