A shadow of 2008 looms over Europe: banks under pressure, CDS contracts rising, and Germany fragile. Fear and opportunity intertwine in an increasingly unstable equilibrium.
Everyone remembers 2008, but few want to admit that something similar could happen again. This time, however, the epicenter wouldn’t be Wall Street. The most dangerous signals come from Europe. Indeed, the conditions and rules have changed. Yet, the parallels emerging from recent data will surprise you, perhaps even in a positive way.
The subprime mortgage crisis that engulfed Lehman Brothers didn’t arise out of nowhere: it was years of accumulated, undervalued, and poorly managed imbalances, to the point where confidence evaporated. The system’s weakness wasn’t so much the size of the liabilities, but the speed with which investors stopped believing they could be repaid.
It’s worth clarifying an educational concept: in finance, confidence is as important a variable as the numbers. A balance sheet may appear sustainable, but if market participants believe it isn’t, markets can collapse in a matter of days. This self-fulfilling effect was evident in 2008, when forced sales and credit freezes multiplied the crisis.
Well, let’s start by saying that the heart of the problem today isn’t the American real estate market.
Signs of Stress: What CDS Contracts Tell Us
Did you know that CDS (credit default swaps) on some European banks have risen 30-40% in recent months?
CDS contracts are derivative instruments used to hedge against the credit risk of a borrower’s default, in this case a bank. If CDS prices rise, it means investors are willing to pay more to protect themselves from a possible default.
A technical clarification: the price of a CDS is nothing more than the CDS spread an investor pays to cover themselves against the bankruptcy of an issuer. If a CDS spread on a bank widens from 100 to 200 basis points, it means the market perceives a doubled risk.
It’s the same mechanism that alarmed the markets in 2008: CDS on major American banks exploded in a matter of weeks, signaling that the system no longer trusted itself. Back then, the trigger was the collapse of the US real estate market, which undermined the solidity of bank balance sheets filled with subprime mortgages transformed into complex securities.
Today, we are not in that situation. European real estate markets do not show imbalances comparable to those before the crisis. However, the underlying dynamic is similar: growing demand for protection, and this is a warning bell that experienced investors never ignore.
Germany as the weak link
The fear comes not from Wall Street, but from Berlin. The Ifo index, which measures German business confidence, fell to 87.7, signaling a sharp decline in optimism. A weak Germany is a problem for the entire Eurozone, because its export-based model is the continent’s economic backbone.
The pressure comes not only from sluggish domestic demand, but above all from the new 19.5% US tariffs. If German exports slow, tax revenues decline, and confidence in the country’s economic prospects deteriorates.
And what happens to the bond markets? Yields on Bund, German government bonds, are rising. And here lies a delicate mechanism: when yields rise, the value of bonds already in circulation falls.
To better understand: a fixed-coupon bond becomes less attractive when new bonds offer higher yields. This causes a loss of value for those who already hold them.
For private investors, this may seem like a loss only "on paper." But for banks, which hold huge portfolios of bonds, these losses become a systemic risk. This is exactly what happened with Silicon Valley Bank (SVB) in 2023: US government bonds lost value due to the Fed’s rate hikes, and the mark-to-market losses forced asset sales and triggered a liquidity crisis.
Differences with 2008
It is crucial to emphasize that today’s context is not identical to that of 2008.
There is no real estate bubble comparable to the American one.
European banks have more stringent capital requirements, introduced after the global financial crisis.
The ECB has faster and more effective intervention tools than in 2008.
However, small imbalances are noted on the credit side, such as the NPL ratio in European banks still averages above 5%, much higher than those of US giants.
An NPL is a loan on which the borrower has not paid installments for more than 90 days. If the volume of NPLs increases, the bank’s capital adequacy is weakened and its ability to grant new credit weakens. This can generate a domino effect on the real economy. But I want to emphasize that we are far from being able to call it a crisis.
Fear or opportunity?
The question remains: could a new Lehman emerge in Europe?
The answer, with the data in hand, is that the risk of such an event is remote. However, signs of tension exist and deserve to be understood. Not so much to generate alarmism, but to understand that markets also thrive on perceptions, not just numbers.
Here’s a crucial learning point: expectations matter as much as data. If investors fear a crisis, they can sell their assets, fueling a spiral that makes a crisis more likely.
Perhaps there’s too much fear today, and pessimism may even have outweighed the real risks. Some say the best deals are made when "there’s blood in the streets." Today, without reaching apocalyptic scenarios, fear is present.
For the informed investor, this can mean two things: caution, certainly, but also opportunity? Understanding the difference between real systemic risk and the perception of risk is what distinguishes a speculative approach from a strategic one.
The world has changed since 2008, but one lesson remains unchanged: recognizing the signs of stress before they turn into panic is the difference between those who endure the crisis and those who manage to turn it into an opportunity. Original article published on Money.it Italy 2025-10-01 07:51:00. Original title: La nuova Lehman Brothers potrebbe nascere in Europa. Paura od opportunità?
