European officials round on Lagarde
European politicians and regulators are still struggling to come up with a mechanism that will calm investors’ skittishness about banks’ exposure to sovereign debt across the southern eurozone. A high-profile pan-European “stress test” of bank balance sheets has failed to allay investors’ concerns about their ability to withstand a default by a European government, or a severe deterioration in their credit portfolios across the region.
“We have to break the link between the sovereigns and the banks, particularly in Spain and Italy,” said one regulator.
Ms Lagarde’s allusion this weekend to the potential use of the European Financial Stability Fund, a €440bn bail-out fund, as a means to recapitalise banks by force, would be far better directed towards a liquidity solution, some officials said. No headway has been made towards the idea of EFSF-guaranteed bank bond issuance, they admitted, though that would be the “most sensible solution”, according to one.
Jean-Claude Trichet, the president of the European Central Bank, separately dismissed any idea that Europe could face a liquidity shortage in his own Jackson Hole address, saying efforts to combat the financial crisis would prevent such an outcome.
“The idea that we could have a liquidity problem in Europe” is “plain wrong,” Mr Trichet said.
ft.com |
