European banks need capital, but do not want to sell equity at depressed prices; they have opted to rein in loans and sell assets instead. This will trickle through to the economy, especially emerging markets, who increased borrowing 300% from 2000-2008. European banks are the largest lender to the world, with outstanding claims twice the US and the UK. The dollar will rally, as new loans cease, old loans made in dollars are pulled in, creating a shortage.
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