OUTGOING Commonwealth Bank chief executive Ralph Norris has warned that the European debt crisis has entered a dangerous phase, likening the current turmoil to the global financial crisis of three years ago.
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Mr Norris said global money markets ''effectively froze'' this week as Germany failed to sell the entire stock of €6 billion ($8.2 billion) worth of long-term bonds.
His comments came as the leaders of the euro zone's key economies, France and Germany, met in France overnight to resolve differences over how to handle Europe's debt crisis.
But Mr Norris, who retires next Wednesday after more than six years in the role, cautioned that credit-crunch conditions were returning, which is threatening to choke off funding for banks around the world.
''This has potential to be significantly worse than the Lehman Brothers collapse and the subprime crisis because now we are talking about nation states,'' Mr Norris told BusinessDay.
''If you have a situation like you had today, where markets had effectively frozen, then it doesn't matter how good your name is, you are not going to be able to access markets,'' Mr Norris said. ''As of today, no banks could access these markets.''
Westpac boss Gail Kelly also expressed fears about the fragile situation and urged Europe's regulators to get on top of the crisis.
''What's happening in Europe is a major concern and not improving. The various authorities in Europe actually have the capacity to deal with these issues - I certainly wish they'd get on with it and do it,'' she said.
The Australian sharemarket ended slightly lower yesterday, but performed better than its US and European counterparts.
The benchmark S&P/ASX 200 Index fell for the fifth day in a row, giving up 6.8 points to 4044.2. The Australian dollar traded near a seven-week low and was last night trading at US97.09¢.
The stresses on global money markets mean the cost of raising wholesale funds for banks were significantly elevated, Mr Norris said.
One of the biggest wake-up calls for European policymakers occurred early yesterday morning as the region's powerhouse, Germany, suffered probably its worst bond auction ever.
Debt markets were shocked by the news that more than a third of the ''Bunds'' went unsold in an auction of €6 billion worth of 10-year debt. This poor sales result has stoked fears that Germany is being dragged into the crisis. Indeed, one German politician warned that his country was being ''drawn into the debt swamp''.
Vince Rodriguez, head of fixed income at Aberdeen Asset Management, said: ''It's the first sign that the contagion, the fear that we have, is spreading not only to France, but to Germany.''
French President Nicolas Sarkozy was scheduled to meet German Chancellor Angela Merkel for further talks on the euro-zone crisis overnight.
While Germany's bonds remain expensive, the poor outcome of the auction was a clear message that investors were rejecting exposure to the euro. This is only likely to intensify near-term expectations of a possible breakup of the region, something the euro-zone members are firmly against.
''The risk is rising further that these stresses spread outside of European countries, including Australia,'' said ANZ chief economist Warren Hogan.
''Indeed, the two key transmission mechanisms to Australia from this European crisis - China and funding pressures - are now worsening,'' he said.
The German jitters come shortly after Europe's second biggest economy, France, came under pressure, with questions being raised over its AAA credit rating, pushing up its borrowing costs. While others, including Spain, have also seen a jump in borrowing costs.
Australian government borrowing costs, meanwhile, have fallen to record lows as investors seek a haven from Europe. The benchmark Australian 10-year yield yesterday fell to a record low of 3.81 per cent.
With LUCY BATTERSBY
