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By Jeremy Glaser | 05-14-2010 04:14 PM

European Banking Crisis Would Have Big Impact in U.S.

Morningstar's Matt Warren thinks the European Central Bank must build a firewall around failing European nations and banks or the crisis could spread across the globe.

Jeremy Glaser: I'm Jeremy Glaser with Morningstar.com. European banks took another big tumble on Friday. I'm here with associate director Matt Warren to discuss the cause of the fall and what Europe might do to try to keep the banks stable. Matt, thanks for joining me today.

Matthew Warren: Good to be with you.

Glaser: So first off, it seems like after last weekend, where they worked all weekend to get this bailout, that the banks were going to look stabilized. There was a huge rally. What caused this reversal of sentiment today?

Warren: So that was supposed to be the "shock and awe" campaign, to try to stabilize the situation, put in a firewall. There's a lot of money involved, and a lot of parties involved, so you had the IMF taking a big share of the proposed loan scheme.

In my mind, that's a step in the right direction. The problem is that they were going to buy some sovereign debt at the ECB, but they've been sterilizing those funds. So in other words, they have not resorted to printing money yet, and I think that's what the market's kind of waiting for, in my opinion.

Glaser: Do you think that's something that's politically possible right now in Europe, or is the ECB just going to say, "No," and try to defend their independence?

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