Eurozone must face up to debt, bank risks: Osborne

4th October 2011, Comments 0 comments

British Chancellor George Osborne said Tuesday that eurozone governments have to make it clear to markets that the state will, if necessary, rescue banks threatened by the eurozone debt crisis.

"We need to reflect on the reality of the situation in the eurozone and account for the reality of sovereign risk, which requires more capital in some eurozone banks," Britain's finance minister said after breaking away from lengthy EU talks in Luxembourg.

"Obviously, it is preferable if that capital is raised privately but they have to make it clear (that) national public backstops are there if required," he stressed.

Ministers from the 27 European Union states spent most of the day talking about how to contain the spillover from the debt crisis begun in Greece as France and Belgium said they would guarantee failing bank Dexia's commitments.

Eurozone leaders, who have once more delayed bailout funds for Greece, are worried that the banking system could be put at risk in a chain reaction if Athens defaults on its debt.

Asked if stress tests on bank capital and liquidity at EU level need tougher criteria, Osborne said that "national authorities across the eurozone need to be realistic about the positions of some of their banks."

Tests were needed to produce results "closer to market perceptions," he said, adding that there was "widespread recognition in the room today" of the scale of the dangers facing the eurozone and its EU partners.

He said ministers acknowledged that the strength or otherwise of the eurozone banking system was "something that had to be addressed, and I believe it will be," with a "sense of urgency" present throughout the talks.

He said he reiterated to his partners that the eurozone had to boost the firepower of its rescue fund, strengthen the banking system, "decide what to do about Greece and stick to that," and then work out how to legislate for adequate cross-border governance of its linked economy.

© 2011 AFP

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