Tyndall: Europe teetering on the edge

Tyndall: Europe teetering on the edge. The Turkish lira collapse has been widely attributed to being a side-effect of the US Fed tapering program. However, a surprisingly high inflation reading for Turkey and resulting negative real yields are the most likely drivers of the currency collapse and resultant sell-off in Turkish bonds and doubling of official interest rates. The impact of this has been magnified by concerns that the Greek banking system has the largest exposure to Turkey, which in the event of a default could return Europe back to the contagion fears of the global financial crisis. It's also worth keeping an eye on the ECB's Asset Quality Review of Europe's largest 130 banks, due to start in the first quarter of this year, which could be a potential concern for the markets should the outcome on required recapitalisations be worse than expected. (VIEW LINK)