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14 May 2012

Presseurop: Banks could sink the euro


The future of the single currency is being played out in the banking sector. As a result of the crisis, governments and financial institutions have become so interdependent that they have weakened each other.

For Daniel Gros, who is part of the Brussels Centre for European Policy Studies think tank, to discuss "austerity versus growth" is a "false debate" that does not take forward the search for a solution to the euro crisis by a single step. The real debate, he says, should be about banks, particularly those of southern Europe, which are in a much worse condition than was previously thought. "The Greek and Spanish banks are sitting on a growing mountain of debt”, says Gros. “Only Europe can save them. Greek and Spanish governments are too weak. This is a major European problem."

With northern European banks pulling out, southern European banks are sinking more and more into debt. These bonds that foreign investors are ditching are just ones being bought by southern European banks. They do so under pressure from their governments, but also because it saves them money. In exchange for this favour, governments in turn offer new loans to banks at lower interest rates.

Many say that only a European Union bank can release the banks and governments from this suffocating embrace. A union bank with a rescue fund put together by the banks themselves would mean that governments are no longer obliged to bail out failures. This would solve the current dilemma of "too big to fail", where the big banks can get away with anything because they are sure to be rescued by the government when things go badly. If they suffer themselves, they will assess the risks differently.

The European Commission has prepared a proposal but its publication has been delayed for two years because Member States do not want it. It calls for much tougher European supervision and equates to a transfer of national sovereignty, which is, for many countries, a difficult or taboo subject.

Full article



© Presseurop


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