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Europe’s Financial Wasteland

PARIS – “April is the cruelest month,” wrote T.S. Eliot at the beginning of his great poem, “The Waste Land.” But, if Eliot had been a professional investor who had observed European financial markets over the last few years, I am quite certain that his choice would have been August.

In August 2007, the decision by BNP Paribas to close two of its hedge funds exposed to the subprime sector precipitated a liquidity crisis for all European banks during that summer. This year, BNP’s great rival, Société Générale, has been in the spotlight. Its stock fell by more than 14% in one day in mid-August, plumbing depths not seen for two and a half years. Rumors have swirled about a possible downgrade of France’s sovereign debt, accompanied by speculation about the consequences for French banks.