Banking group calls for closer financial ties in the Eurozone

City A.M. Reporter
CREATING a banking union for the Eurozone could break the fever gripping the shared currency and buy time for governments to put the euro on a viable long-term footing, the Bank for International Settlements said in its annual report yesterday.

“If adopted, these measures will break the adverse feedback between the banks and the sovereign and other destructive links that are making the crisis so severe,” the BIS said in its report.

It also warned that banks are in danger of a “vicious cycle” from the need to pledge more of their best quality assets as protection to central banks and other creditors, which could hinder the banking system’s ability to absorb shocks.

The report also said:

■ The Bank of England could be putting the UK economy at risk by printing money.

■ Most developed economies need 20 consecutive years of surpluses exceeding two per cent of GDP just to bring the debt-to-GDP ratio back to its pre-crisis level.

■ Central banks hold 30 per cent of global GDP after buying £11 trillion of government bonds.

■ The credit boom is stoking risks in emerging markets.