Friday 9 December 2016

Banking bailout may herald new rules on burden of debt

Q & A

Published 06/10/2011 | 05:00

1. Why all this sudden activity on the euro after months of nothing much happening?

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•It has now become a banking problem, as many said it would, and this is more urgent than national debt problems. Banks have to stay in business Monday to Friday, and some were beginning to struggle.

2. So the bankers are going to be rescued again?

•It looks like it. The IMF thinks eurozone banks need up to €200bn of new capital. Eurozone governments got very cross when the IMF said it first but now accept that they cannot pretend any longer. It is a small sum of money in eurozone terms, but we know banks have "fat tail" risks -- which means it is hard to know how much they need.

3. How will the money be found?

•As far away from a direct raid on taxpayers' wallets as possible. Funds may come initially from the new European Financial Stability Facility, which, when finally approved, will have €440bn at its disposal, and the possibility of borrowing much more.

4. Was that not meant to rescue governments?

•Indeed, which is why some think a whole new chapter may be opening.

If banks are to face up to losses and get new capital, it strengthens the case for them taking losses on Greek debts and reducing the interest burden on Greek citizens. And not just Greeks.

Ireland is already pressing for access to the funds to reduce the cost of the money it borrowed to recapitalise its banks.

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