BoF's Noyer 'open' to improving Europe bailout fund

3rd October 2011, Comments 0 comments

Bank of France governor Christian Noyer said Monday he was "open" to making Europe's rescue fund more flexible, stressing that worries over the exposure of French banks to the crisis were exaggerated.

Speaking at a Tokyo seminar, Noyer said it was unrealistic to expect an increase in the facility, which has a maximum effective lending capacity of 440 billion euros, which some say is insufficient to bail out the likes of Italy.

But Noyer, who is also on the board of the European Central Bank (ECB), said he was open to making the European Financial Stability Facility (EFSF), a bailout fund for nations such as Greece, more flexible.

"It would be unrealistic to expect an increase in the EFSF itself but I am open to any scheme that would allow existing commitments to be leveraged to provide greater intervention capacity."

His comments came as eurozone finance ministers prepared to meet in Luxembourg to discuss debt-ridden Greece's progress, as the bloc grapples with how to safeguard its banking system and enhance the EFSF.

Athens on Sunday said it would miss its deficit targets, leading to renewed fears over the risk of a default and the knock-on effects across the global economy.

Changes to grant new powers to the bailout fund, as agreed by eurozone leaders in July, have so far been ratified by 14 out of all 17 eurozone nations.

If fully approved, the facility will have the power to buy sovereign debt on primary and secondary markets, offer precautionary credit and lend money to recapitalise banks.

Noyer said it was imperative for governments in the region to provide a "liquidity backstop" as the ECB's purchases of sovereign debt have been and will stay "extremely limited".

He added: "This is why we have been asking for more flexibility in the EFSF and very much welcome decisions taken in this regard on July 21".

Noyer also addressed the French banking system, which has been hit by concerns over the possibility of a Greek debt default, after Moody's downgraded its debt ratings of Societe Generale SA and Credit Agricole SA last month.

He said that French banks' dependence on dollar funding "due to the scale of their international activities" had made them vulnerable, but that concerns about their exposure to peripheral eurozone debt was "exaggerated".

He added that their exposure was small in comparison with bank capital.

Asian markets tumbled on Monday amid renewed fears of a Greek sovereign default and its impact on the world economy, as investors digested the failure of Athens to meet its budget deficit target.

The euro slid to a more than eight-month low versus the dollar with no end in sight to the European debt crisis.

Despite the euro's sharp falls in recent months, Noyer expressed confidence in the currency.

The ECB's efforts to preserve price stability and the unit's value means "we can look at the future of the euro with strong and realistic optimism," he said.

He added that the Swiss national bank's decision to peg the Swiss franc to the euro should be taken as a sign of confidence in the single currency.

© 2011 AFP

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