[Der Spiegel] Capital Flight and Non-Performing Loans Grip European Economies

 Plane crashes, market falls, recessionary indicators…what hasn’t Europe 

faced in the past few months?

December 9th, 1998

Following the countless market crashes in the world, Europe is finally starting to fall prey to financial 

contagion. Market falls have hurt investor confidence, while governments are slowly running out of liquidity

 and taking on more high-yield loans to pay for such spending. Risk is now inherent in the European 

economy, and liquidity issues in both the public and private are arising. German companies would have 

invested heavily in the Southeast Asian region like Siemens AG are now struggling to garner returns, and 

retrenchment rates are climbing. Meanwhile, capital flight away from Europe is starting, as investors pursue

stability in their investments. 

 

In worse news, poor banking regulations in nations like France and the United Kingdom has led to 

immense risk-taking by commercial banks across the region. While this has most definitely benefited the 

European economies by allowing rapid GDP growth, such risky loaning has led to non-performing loans, 

as delinquency rates for such loans rise due to the poor state of these foreign loans. Moreover, shadow 

banking has become a more prominent issue now, with unregulated “shadow banks” having provided these 

risky loans facing bankruptcy, and by corollary effect threatening the possibility of bank runs across the 

subcontinent. 

 

Economic collapse is a strong likelihood should this issue of illiquidity remain unresolved, and the fate of 

Europe now lies in the hands of the IMF.

Location: Berlin, Germany

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