Markets around the world steadied on Friday in Europe, despite rumors of an imminent Greek default. Stock markets in Europe showed modest gains after roller-coaster trading, while U.S. markets held steady.
Adding to worries was talk that Europe’s banks are undercapitalized, thus facing far greater losses than originally expected if Greece fails to pay its debts and other eurozone countries follow suit.
Exchanges from Asia to Europe feel by afternoon, but rallied to post modest gains, with the DAX and the CAC both up about 30 points. The Nikkei was closed for a holiday. In the U.S., the S&P finished up 6.85, the Dow up 37.65 and the Nasdaq up 27.56.
Reuters reported that the International Monetary Fund (IMF) believes Europe’s banks need to beef up their capitalization by some 200 billion euros ($265.356 billion) if Greece defaults and other countries in the euro zone with financial woes, such as Italy and Ireland, follow suit. Analysts believe the situation is even worse.
Barclays Capital puts the figure at 230 billion euros to maintain a 6% core Tier 1 capital ratio if, in a worst-case scenario, the debts of Greece, Ireland, Italy, Portugal and Spain (GIIPS) are written down by 50%. Credit Suisse is even more pessimistic, calculating that a total of 400 billion euros in additional capitalization will be needed by 2012 to account for losses from sovereign debt, the recession, and higher funding costs.