9 European Financial Crisis You MUST Know, Now!

We are cutting right to the chase today. The re-emergence of the EU financial crisis as a ginormous risk to your personal wealth is going on two plus months. As of late, we have begun to see the same terms being used by Wall Street pros to explain the developments (sound smart: news flow), likely as they have been slow to unfold. You have no excuse for not knowing at least five of the words below to apply in a public (work) or a private (bedroom discussion on finances with your partner) setting, this is your hard earned money in play!

Recapitalize: The process of injecting money into a country’s banks (sound smart: financial institutions) to shore up their financial standing because they are undercapitalized (be smart: not enough money to cover losses on investments caused by a poor economy).

Sovereign debt: Debt issued by a country.

Risk premium: If it costs Germany 5% to borrow money and 12% for Italy, the difference is the risk premium. Italy’s finances are shakier than Germany’s, and investors are demanding a higher rate of interest to compensate for the risk of losing their shirts.

Nationalize a bank: When a country steps in and assumes control of a struggling bank as depositors are withdrawing money in droves, which makes it difficult to borrow money. Basically, the country is trying to prevent an overall financial system meltdown. The downside: shareholders in the bank are left holding a worthless investment.

Capital: How a company is financed (cash and debt).

European bailout fund (sound smart: European Financial Stability Facility, or EFSM): A pool of money created in 2011 to make sure (sound smart: backstop) financially strapped countries could still borrow more to fund their governments and pay maturing debt obligations. The negative: to get the money a country has to sign up for years of austerity, or forced lower living standards.

Systemically important banks: Any large financial institution, as measured by assets and liabilities, that risks bringing down the entire financial system should it go defunct. Commonly referred to as “too big to fail” banks.

Group of Seven (sound smart: G7): Seven leading industrialized nations that will meet to discuss the world’s problems and then issue a press release that is pretty limp on details and problem-solving actions.

Firewall: As we have noted on our Twitter page before @DecodingWallSt, there is technically no firewall built around a country’s borders. It’s a finance industry contrived jargon word that illustrates a need for a government to enact programs to stop financial crises from spreading (sound smart: ring-fence).

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