|The Potential European Debt Crisis You Are Not Hearing About |
Jason Voss, CFA
The European sovereign debt crisis has been occupying a disproportionate amount of investor mindshare over these past many months. Yet there is another potential debt crisis in Europe that is receiving almost no attention from financial analysts or the press.
During the global real estate bubble €6,123 billion worth of mortgages were issued in Europe. Many of these borrowers are paid salaries or wages in their local currency yet must repay their loans in euro. Mortgages taken on by homeowners in the European Union (EU) who live outside the eurozone are known as “FX mortgages.” The declining value of the euro has thus proved a boon to FX mortgage holders who saw their property values fall when the bubble burst — but, if the euro regains its value, European banks could face a sea of defaults.
Why FX Mortgages Are A Potential Problem