Friday, September 16, 2011
Crisis Worse Than 2008 in Europe as Rescue Options Dim, Gordon Brown Says
European banks are “grossly under- capitalized” and the debt crisis is more serious for the region than the 2008 meltdown as governments are constrained by fiscal pressures, former U.K. Prime Minister Gordon Brown said.
“In 2008, governments could intervene to sort out the problems of banks,” Brown said at the World Economic Forum in the Chinese port city of Dalian today. “In 2011, banks have problems, but so too do governments.”
Investor skittishness over Europe’s sovereign debt crisis raised lenders’ funding costs and caused a rout in the region’s banking stocks this month. European Central Bank President Jean- Claude Trichet pressed euro-area governments late yesterday to take decisive action to restore confidence after the ECB extended an emergency lifeline to lenders.
Brown said that while the ECB is part of the short-term solution, it needs additional assistance.
The European Financial Stabilization Mechanism, which is run by the European Union’s 27-nation executive arm, is “not enough,” Brown said. “Substantially more resources” are required, including from the International Monetary Fund and lenders including China, he said.
‘Hour to Midnight’
“The euro area problem is now moving to the center,” Brown said. “The euro cannot survive in its present form, it’s going to have to be reformed dramatically. We are I think at an hour to midnight in the way that we look at this issue.”
Regulators should stick to their commitments to implement bank capital rules agreed by the Basel Committee on Banking Supervision irrespective of opposition from lenders, Trichet said yesterday at a forum in Wroclaw, Poland, including plans to require the biggest banks to hold up to 2.5 percentage points in extra reserves.
“In a crisis period where confidence is of the essence, it would be extremely damaging if the authorities were to hesitate, demonstrate an absence of resolve and of the fortitude that is required by the circumstances,” Trichet said. “For me, it is crystal clear: what has been decided is decided.”
Britain’s government this week said it will force lenders to insulate their consumer banking units by 2019 as Chancellor of the Exchequer George Osborne seeks to shield customers and taxpayers from another financial crisis.
“European banks as a whole are grossly under- capitalized,” Brown said. “We’ve now got the interplay between banks that are not properly capitalized and sovereign debt problems that have arisen partly because we’ve socialized or accepted responsibility for the banks’ liabilities.”
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