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- January 2012: Vol. 5, Number 1

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The Last Days of the European Empire: Once Infrastructure Bankers to the World, Europe

by John McKenna

 

European banks have long been the dominant force in global project finance, but they are now rapidly retreating from the market due to several major crises. What will fill the void left by these major players in infrastructure financing?

Europe has witnessed the rise and fall of many great empires and has seen its fair share of revolutions. Its governments and banks are now seemingly in the throes of their own cataclysmic change as nations both inside and out of the euro zone struggle to manage the high levels and inexorably rising cost of sovereign debt.

For infrastructure finance across the globe, the challenges posed by both Europe’s sovereign debt crisis and the higher capital ratios proposed under the Basel III banking rules are enormous. As the chart, “Global Project Finance by Source of Funding,” shows, the majority of capital allocated to infrastructure deals comes from commercial bank debt. And the region whose

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