Each nation’s government owes money to foreign banks. The foreign banks are threatened by a default — an “Iceland event.”
The biggest debtor is the USA. If our government defaults, the West’s economy collapses.
Which nation is most at risk today of foreign governments’ defaulting? France. France is Italy’s biggest creditor. But Italy is close to default. It needs a bailout.
If the American credit ratings agencies downgrade France’s banks, the French government will probably fall. Europe’s monetary Union will collapse.
The New York Times has created an interactive chart that lets you find out which nation’s banks owe what to other nations. You can see how all roads lead to France. Greece owes more to French banks that any other nation. So does Spain. So does Italy. This is why Sarkozy is desperate to get Germany to bail out everyone. If Italy goes down, France goes down.
Japan is listed. Which banks does it owe? Only France: $8 billion. Japan is the creditor nation. Its biggest debtor is the USA.
The chart makes it look as though American banks are safe from default. The chart is wrong. To find out why, click here.
To see the chart and find out whose banks are in the hole, click the link.