EUROPEAN Central Bank policymaker Benoit Coeure called yesterday for the Eurozone’s permanent bailout fund to have the power to inject capital directly into banks as part of a package of steps to tackle the bloc’s debt crisis.
“The adverse feedback loop between banks and sovereigns ... can be broken by establishing a true financial union,” Coeure said at a sovereign risk forum in Rio de Janerio.
“In my view this includes the creation of a pan-euro area deposit insurance fund and a pan-euro area bank resolution framework, supported by a single supervisory system with centralised decision-making,” he added.
Spain and Cyprus have both had to seek bailouts to prop up their banking sectors.
Giving the European Stability Mechanism (ESM), the Eurozone’s permanent bailout fund, the ability to inject capital directly into banks “would also help to break the bank-sovereign loop”, Coeure said.
Coeure said a path towards fiscal union “would provide a sound ‘fiscal pillar’ on which the single currency could safely rest” but added that national governments could not avoid putting their own houses in order.
“A fiscal union can only come about once the participating countries have successfully restored domestic fiscal sustainability and solidified the conditions for long-term growth,” he said. “Joint debt issuance cannot be a substitute for putting national fiscal houses in order and restoring competitiveness.”
City A.M. Reporter