2 Dec 2010

Debt crisis fallout reaches NZ

8:04 am on 2 December 2010

Fallout from the European debt crisis is beginning to be felt in New Zealand.

There is speculation a major European economy will soon follow Ireland and ask for a bailout.

Portugal, Spain and even Italy are being tipped by financial markets for further trouble.

Radio New Zealand's economics correspondent says lending to banks slowed before Greece's bailout by its European peers earlier this year, due to uncertainty surrounding which banks held potentially toxic Greek government debt.

A senior executive at Westpac says offshore borrowing costs for banks have increased in the past week.

But the increase is not as pronounced as for some European banks.

However, it shows financially-sound Australian-owned banks are not immune from the unfolding economic crisis in Europe.

But a flare-up in Europe could be good news for the Government's borrowing programme.

Moody's economist Matt Circosta says investors are fleeing risky European government debt.

And they could replace that debt in their portfolios with New Zealand Government debt.