Argentina’s Woes May Injure European Investors
December 4, 2001
It’s halfway around the world, but Argentina’s deepening debt will hit Europe. The only question is how hard.
Of all the European countries, Spain is the most involved in the troubled economy.
Argentina received $89 billion in foreign direct investment from 1994 through 2000, and 27.7 percent of it was Spanish.
Of particular concern for Spain are the portfolios of investment banks which once saw Argentina as a good bet but now agonize at the prospect of restructuring or even possible default on the country’s $132 billion debt.
Two Spanish banks, Banco Santander Central Hispano and Banco Bilbao Vizcaya Argentaria, take more than 40 percent of their earnings from Latin America, and they could be especially hard hit, analysts say.
But as of Tuesday, economists continued to call Argentina a "wild card", and stock markets responded hesitantly to the crisis. A year ago, it might have dominated headlines, but for investors watching global events it now competes with the war in Afghanistan and a fast-developing conflict in the Middle East.
Whereas Spain’s financial institutions are the most likely to absorb direct shocks from Argentina’s crisis, Germany may be the top loser in terms of trade volume.
Germany, friendly with the government in Buenos Aires through good times and bad, is the country’s third-largest trading partner after Brazil and the United States.
About 5 percent of Argentina’s imports ($1.2 billion) come from the Federal Republic, according to the German-Argentine Chamber of Commerce and Industry. Machine tools accounted for the largest share of German products sold there.
Germany is also tied into the economy by foreign direct investments that totaled $2.38 billion at the end of 2000.
Many foreign investments and some trade may be safe, in strict cash terms, even in case of a debt default, if the firms involved do their business in stable currencies rather than Argentine pesos.
But companies are understandably hoping to ride out this crisis, somehow, without the issue arising.