Evergrande: the impact of a bankruptcy would be limited for Europe, believes Christine Lagarde

Posted on Sep 24, 2021, 10:46 AMUpdated Sep 24, 2021, 2:52 PM

The euro zone does not have to fear a possible bankruptcy of the Chinese real estate giant Evergrande. The President of the European Central Bank (ECB), Christine Lagarde, assures us. “I vividly remember the latest stock market developments in China which had repercussions around the world. But in Europe and the euro zone, in particular, direct exposure would be limited, ”she explained Thursday on CNBC’s antenna.

Europe is keeping a very close eye on the file, she explained, however: “We are examining it. We are monitoring and I had a briefing earlier today because I think all financial markets are interconnected. However, “As I told you, at the moment we are seeing China-centric impact and exposure.” I cannot speak for the United States [mais] I can say for Europe that its direct exposure is limited, ”she insisted.

The United States reassures

On the other side of the Atlantic, precisely, the speech is also meant to be reassuring. The United States “are not really directly exposed”, said Wednesday the boss of the American central bank (Fed), Jerome Powell. Assuring that the situation of Evergrande “seems very particular to China, which has a very high debt for an emerging market economy”, he also stressed that the big Chinese banks are not exposed “too much”.

According to the boss of the Fed, however, there is a risk: that of a market disruption. “We can be concerned that it might affect financial conditions in the world through trust channels or that sort of thing,” said Jerome Powell.

A deadline not honored

Each development in the Evergrande file has indeed caused upheavals in the global financial centers for several days. The most pessimistic fear a scenario à la Lehman Brothers, whose bankruptcy had thrown the world into a serious financial crisis in 2008. Everyone is waiting to know if and how Beijing will come to the aid of the private conglomerate which is crumbling under a debt of 260 billion euros .

According to the latest information, revealed by the “Wall Streel Journal” on Thursday, local authorities are preparing for the worst. Evergrande has just been let go by its second largest shareholder, Chinese Estates Holdings, which has said it is considering withdrawing completely from the holding.

True, Evergrande announced on Wednesday the payment of interest on a small portion of its debt. But the real estate group was supposed to pay interest yesterday in the amount of $ 83.5 million on a bond loan denominated in dollars. However, several bondholders claim not to have received this interest which has matured. Evergrande is also expected to honor interest on another dollar bond next week in the amount of $ 47.5 million. Both will be in default if he does not pay the amounts due within thirty days of the scheduled payment dates.

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