The need for pan-EU funding support for banks
Dear Members of the ECOFIN,
A sense of a worsening crisis has hit the EU. Sovereigns and banks are being shut out of funding markets. They find it increasingly hard to refinance their maturing bonds at affordable interest rates.
In the panic following Lehman’s collapse in 2008, EU governments took national level initiatives to provide emergency support to banks through capital injections and funding guarantees. Given that so many sovereigns are themselves unable to borrow at sustainable rates this national level approach will not work at this time.
The interconnectedness of the EU banking system is so high that the inability of banks in troubled countries to fund and recapitalize themselves through the markets is weighing all EU banks down.
That is why we call on the ECOFIN which meets this week to urgently adopt pan-EU measures to providing capital and term funding backstops for banks in all member states. The details are less important than the principle that a European approach is needed to address what is essentially a European not a national problem.
Of course, the urgency for the Euro area to restore full confidence in the sustainability of sovereign finances cannot be overstated. Without this, no steps to support the EU banking system will be enough.
Academic and Think Tank members, Banking Stakeholder Group, European Banking Authority
Andrea Cesare Resti, Bocconi University
Daniel Gros, Director, CEPS
David T Llewellyn, Loughborough University
Giovanni Ferri, University of Bari
Javier De Andrés, University of Oviedo
Rudi Vander Vennet, Ghent University
Sony Kapoor, Managing Director, Re-Define