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Europe squared up to the growing likelihood of a new collapse in its banking sector as markets crashed and the euro fell on growing fears Greece's debt crisis could snare exposed banks...
With eurozone leaders again delaying a handout of bailout monies to Greece, worries are mounting that banks could start falling like dominos if a chain reaction of even partial debt defaults is triggered from Athens.
France and Belgium stepped up to pledge they would guarantee Dexia's commitments as the drama morphed into what French Finance Minister Francois Baroin termed a "replica" of the US mortage-induced credit crunch in 2008.
Osborne however said ministers had acknowledged that the strength or otherwise of the eurozone banking system was "something that had to be addressed, and I believe it will be," with a "sense of urgency" present throughout the talks.
"Dexia's problems stress the point that for eurozone leaders the Greek crisis is less about Greece and more about the potential for it to spark a much more widespread banking and economic disaster," said Rabobank analyst Jane Foley....
Dexia is the leading provider of local government financing in France.
"Europe has got to sort out the Greeks, the banks and the EFSF," said one senior diplomat.....
But there was bad news for Greece's private sector creditors from eurozone chiefs, with German Chancellor Wolfgang Schaeuble underscoring a warning from Luxembourg premier Jean-Claude Juncker overnight.
h warned banks to expect greater losses on their Greek sovereign debt holdings than a 21 percent haircut agreed in July. the private sector said it would participate in a second bailout of Greece, with the eurozone and IMF providing 109 billion euros in new funds.
Many European banks have extensive holdings of Greek sovereign debt, and e governments are worrying about how much they will have to give their banks in the event of a Greek default.