Europe needs to recapitalise, restructure or shut down its banks as part of a vital clean-up of the industry, International Monetary Fund managing director Christine Lagarde said as she warned that the threat from world’s biggest lenders was “more dangerous than ever”.
Speaking in New York ahead of next week’s IMF Spring meeting, Ms Lagarde launched a broadside against the financial services industry for resisting urgent reform.
“In too many cases – from the United States in 2008 to Cyprus today – we have seen what happens when a banking sector chooses the quick buck over the lasting benefit, backing a business model that ultimately destabilizes the economy. We simply cannot have pre-crisis banking in a post-crisis world.
“We need reform, even in the face of intense pushback from an industry sometimes reluctant to abandon lucrative lines of business.”
Almost five years since Lehman Brothers collapsed, she claimed: “The ‘oversize banking’ model of too-big-to-fail is more dangerous than ever. We must get to the root of the problem with comprehensive and clear regulation.”
Regulators have forced banks to increase significantly their loss-absorbing capital buffers since the crisis, but are still working on “resolution” mechanisms that will allow giant lenders to fail without hitting the taxpayer and threatening financial stability.
The European Commission Lays Out The True Blueprint For The Future Of Every European Country
Submitted by Tyler Durden on 04/10/2013 19:20 -0400
Cyprus was the beginning. Next: every other country with a banking system in which non-performing loans are soaring (cough Slovenia cough) as a result of imploding consumer cash flows, and which needs a financial sector “resolution”, which includes, among others, impairment of liabilities courtesy of the new non-template template(and which is now spreading to European interbank deposits). And they all have Cyprus to look to because it will be the benchmark.
Luckily, earlier today as part of its just released “Assessment of the public debt sustainability of Cyprus“, the European Commission was kind enough to spell out in very clear terms just what the fate of virtually every European country will be going forward.
For the gruesome details we go straight to paragraph 10 where we read…
In accordance with the [insert insolvent European country’s name] authorities policy plans, major financial institution will be downsized combined with extensive bail-in of uninsured depositors, and a set of wide-ranging temporary capital controls and administrative measures. The programme is envisaged to build the foundation for sustainable growth over the long run. Nevertheless, in the short run, the economic outlook remains challenging. Real GDP is projected to contract by [insert massive amount] cumulatively in 2013-14. Short-run economic activity will be negatively affected by the immediate restructuring of the banking sector, which will impact on net credit growth and by additional fiscal consolidation measures. Temporary restrictions required to safeguard financial stability will hamper international capital flows and reduce business volumes in both domestic and internationally oriented companies. The bail-in of uninsured depositors will cause a loss of wealth, which will reduce private consumption and business investment. This, compounded by the impact of fiscal consolidation already undertaken and new measures agreed, will result in a sharp fall in domestic demand. Little reprieve can be expected from exports amid uncertain external conditions and a shrinking financial service sector.
And just for once, Europe is actually talling the truth.
Yet such is life, sad as it may be, for a continent that may have “vastly underestimated the amount of political capital that has been invested in the Euro”, and “what the Euro means for the Europeans, for the Euro area.”
For those still confused, it means countless years of pain, suffering and poverty. And it’s all downhill from there
Investor George Soros: Germany Must Accept Eurobonds or Leave Euro
Despite a period of relative calm last year, the euro crisis is creeping back in 2013. In an essay for SPIEGEL ONLINE, star investor George Soros argues that the situation would improve dramatically were Germany to accept Eurobonds. Absent such acceptance, Berlin should consider leaving the euro zone, he argues.
The euro crisis has already transformed the European Union from a voluntary association of equal states into a creditor-debtor relationship from which there is no easy escape. The creditors stand to lose large sums should a member state exit the union, yet debtors are subjected to policies that deepen their depression, aggravate their debt burden and perpetuate their subordinate position. As a result, the crisis is now threatening to destroy the European Union. That would be a tragedy of historic proportions which can only be prevented with German leadership.