Original Sin (not the apple-eating kind)

From www.fncmorningview.com:

Original sin, as an economic concept, refers to a country, corporation, or individual borrowing in a denominated currency other than its own. In the 17 European Union countries that hold the euro as their legal tender, original sin ties weaker economies, like Greece’s, to stronger nations such as Germany.

Bill Rayburn noted that many U.S. banks have already disclosed their connections to the European debt crisis. Yesterday, the Fitch credit rating agency reported that U.S. banks could be “’greatly affected’ if Europe’s debt crisis continues to spread beyond the financially distressed countries of Greece, Ireland, Italy, Portugal, and Spain.” (Source: Yahoo! Finance via Associated Press)

To better understand how the economic crisis in the Eurozone affects the U.S. financial system, Bob Dorsey said, consider counterparty risk – the risk that one party in a contract will default.

“For every deal (European banks) do, there’s someone on the other side of the deal. And there’s someone on the other side of that deal,” Bob said. “There may be three or four counterparties in the chain. Somewhere down that line, in all likelihood, there’s a European bank.”


Additional reading:

Economist Antonio Fatas on Government Debt and the Not-So-Original Sin of Finding Others to Pay for It

From Bloomberg Businessweek: U.S. Stocks Drop as Fitch Warns of Debt Contagion

BBC News’ Greek debt crisis Q&A

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