Debt crisis echoes subprime

City A.M. Reporter
THE debt crisis hitting southern Europe resembles the 2007 subprime crisis more than the financial crisis following the collapse of Lehman Brothers, a report by the Bank for International Settlements (BIS) said yesterday.

In its quarterly review, the bank also said investors were concentrating on signs of stress in the financial system and neglecting positive economic data.

“The Greek downgrade on 27 April and the subsequent market reaction may have more in common with the start of the subprime crisis in July 2007 than the collapse of Lehman Brothers in September 2008,” stated BIS, which is chaired by Bank of France governor Christian Noyer.

“Rising Libor-OIS spreads and the dislocations in US dollar funding markets recalled events in July-August 2007, when global interbank and money markets began showing clear signs of stress.”

The report said investor confidence fell sharply in the past three months amid concern about weaker growth and fiscal problems. Investors lowered their risk exposure. Concerns about public debt in developed countries, the state of financial markets and policy tightening have fuelled fears.