Euro Crisis Stresses World Banks

Michael Probst / AP Photo

A trader makes a phone call at the stock market in Frankfurt, Germany, Monday, Dec.12, 2011 as the German stock index DAX dropped more than two per cent. Enthusiasm for riskier assets such as stocks and the euro faded Monday as investors worried that Europe's new pact aimed at fixing the continent's debt crisis would be insufficient.

Despite a fiscal pact agreed on last week by European leaders, investors have little faith that the debt crisis will be solved—putting the banks that hold billions of dollars of government bonds at risk of failing. In reaction to this, interest rates are climbing, while some banks are not giving out loans. The euro fell below $1.30 for the first time since January. In an emergency measure, French Bank Credit Agricole SA announced it would exit 21 of the 53 countries it’s located in; Commerzbank AG will attempt to avoid a German bailout and move money to a government-owned bank. Global Markets fell—the Dow sank 1.1 percent, while Japanese and Australian markets fell 1 percent early Thursday. Meanwhile, Fitch downgraded five big European banks.