Mexico's former Mexican central bank governor Ortiz says Greece exit could be worse than Lehman

Mexico's former Mexican central bank governor Ortiz says Greece exit could be worse than Lehman

The former Mexican central bank governor Guillermo Ortiz said on Friday that "If Greece leaves the euro zone it could detonate a global financial crisis even worse than the 2008 credit crunch, dry up global trade financing and spur another U.S. recession".

Heavily-indebted Greece is heading toward a snap election next month and global financial markets have swooned on fears the country could reject terms of an international bailout and pull out of the euro.

The collapse of U.S. investment bank Lehman Brothers in late 2008 sparked Mexico's deepest recession since the 1995 Tequila Crisis.

Ortiz said Mexico's was most vulnerable to a potential freeze in financing for international trade shipments.

Euro area banks as a whole provide 36 percent of global trade finance loans, and French and Spanish banks together account for more than two-fifths of trade finance loans in Asia.

Mexico's banking system is dominated by units of major global banks, including Spain's BBVA, but local subsidiaries are well capitalized by local deposits and are not dependent on financing from their parent companies.

Ortiz, who is also a former chairman of the Bank for International Settlements (BIS), said a collapse in trade financing could end up dragging the United States into recession.

"A double dip (recession) would obviously hit the whole world," he said.

Mexico sends nearly 80 percent of its exports to its northern neighbor.

sources:
Reuters