The ECB study was a parting shot from ECB chief economist Juergen Stark, who resigned this month after opposing the bank’s policy of buying troubled countries’ bonds. It was perhaps the most strongly-worded warning about the future of the euro from a central banker.
“Greatly increased fiscal imbalances in the euro area as a whole and the dire situation in individual member countries risk undermining stability, growth and employment, as well as the sustainability of (Europe’s Economic and Monetary Union) itself,” said the research paper, which was published by the ECB but not endorsed by it.
The study co-authored by Stark recommended eurozone countries face tough new debt rules, have their deficits approved at a European level and if they reneged, face automatic fines.
More urgent is the need to bolster Europe’s banks and enable new powers for the eurozone’s bailout fund given many economists expect Greece to eventually default.
The European Union’s new super-watchdog, the European Systemic Risk Board, warned that the knock-on effects of the debt crisis that began in Greece in 2009 had led to considerably higher risks of financial instability in Europe.
“The high inter-connectedness in the EU financial system has led to a rapidly rising risk of significant contagion. This threatens financial stability in the EU as a whole and adversely impacts the real economy in Europe and beyond.”
The board, chaired by ECB president Jean-Claude Trichet, called for “decisive and swift action” from policymakers, widely seen as being slow in the fight to contain the crisis.
It said supervisors “should coordinate efforts to strengthen bank capital, including having recourse to backstop facilities, taking also into account the need for transparent and consistent valuation of sovereign exposures.”
The IMF has pressed for a recapitalisation of European banks—and has faced some opposition from bank executives and EU governments who have argued balance sheets in the region are sound.
http://www.gulf-times.com/site/topics/article.asp?cu_no=2&item_no=459809&version=1&template_id=48&parent_id=28
Thursday 22 September 2011
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