Europe Feels the Sting of the U.S. Housing Slump
- Jan 11, 2008
London–The U.S. economy isn’t the only one suffering from the credit and housing collapse; a ripple effect has plagued parts of Europe–especially Britain–in the past year, The Chicago Tribune reported Friday.Banks in Europe and other regions were burdened when Americans defaulted on their mortgages because they had been packaged into securities and sold globally.The German government had to spend $11.1 billion to rescue the IKB Deutsche Industriebank several months ago because of its U.S. mortgage investments. French bank BNP Paribas had to halt withdrawals from $2.2 billion in investment funds when the mortgage collapse prevented the bank from estimating their actual value.In September, British mortgage lender Northern Rock asked the Bank of England for emergency funding. Concern about tight resources and the declining home market, the U.K. is seeing a “toxic combination of head winds facing the economy,” David Owen, chief European economist at investment bank Dresdner Kleinwort, told London’s Daily Telegraph.Home prices fell nationally by 0.5 percent in December, following an 0.8 percent November drop, cutting year-to-year price growth to 4.8 percent, according to the Nationwide Building Society. Complicating the situation, British consumers are overextended–they owe $2.7 trillion in credit card, mortgage and other consumer loan debt, which is more than the value of all the goods and services produced by the U.K. economy in a year.Like the U.S., Britain faces about a 50 percent chance of a recession this year, according to Owen.