31 May 2012

Reuters: ECB, EU officials warn euro's survival at risk

The European Central Bank stepped up pressure on bank deposits across the eurozone, saying Europe needed new tools to fight bank runs, as the bloc's debt crisis drives investors to flee risk.

ECB President, Mario Draghi, urged Europe's leaders to clarify their vision for the single currency quickly, warning the European Parliament that the central bank could not fill the policy vacuum. "We will avoid bank runs from solvent banks. Depositors' money will be protected if we build this European guaranteed deposit fund. This will assure that depositors will be protected", Draghi said, calling for an EU-wide banking supervision and resolution system.

Germany, reluctant to risk more of its own taxpayers' money in support of eurozone partners, has so far rejected any such joint deposit guarantee. Chancellor Angela Merkel refrained from comment on calls for a banking union but said Europe should be ready to consider all options to stem its sovereign debt crisis.

ECB executive board member, Jörg Asmussen, said that the 25 or so most important banks in the euro area should be supervised by a supranational watchdog rather than just national authorities.

Draghi, testifying before EU lawmakers, said the financial crisis had "heightened risk aversion in a dramatic way". "I urge all governments to keep this in mind, because it is better to err by too much in the very beginning rather than by too little", he said, citing the repeated failure of national regulators to assess correctly the needs of failed Franco-Belgian bank Dexia and Spain's Bankia.

EU Economic and Monetary Affairs Commissioner Rehn said Europe needed both tighter budget discipline and more integrated rescue funds to avert a potential breakup of the euro. "We need a genuine stability culture and a much upgraded common capacity to contain common contagion", he said. "This is the case, at least if we want to avoid a disintegration of the eurozone and instead make the euro succeed."

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© Reuters