Strauss-Kahn slams disjointed response by EU
IMF chief says a comprehensive solution is needed
THE head of the International Monetary Fund criticised Europe's disjointed response to the euro zone debt crisis yesterday after Germany and other states resisted his calls for bolder action.
IMF managing director Dominique Strauss-Kahn failed to persuade finance ministers of the 16-nation single currency area on Monday to increase the size of their financial safety net or the European Central Bank to step up government bond purchases.
"The euro zone has to provide a comprehensive solution to this problem," Strauss-Kahn said after meeting Greek Prime Minister George Papandreou in Athens. "The piecemeal approach, one country after another, is not a good one."
Tension persisted on European bond markets after eurozone ministers said they would take no new measures to tackle the risk of contagion spreading from Greece and Ireland, which have got EU/IMF bailouts, to Portugal and perhaps Spain and Italy. Some central bankers and market participants say it would have been better to have put Portugal protectively under the EU/IMF financial umbrella last week at the same time as Ireland rather than dealing with one troubled country after another.
EU finance ministers did agree yesterday to conduct a new round of more rigorous bank stress tests in February after just seven out of 91 European banks failed a first examination last July of their ability to withstand financial shocks.
EU Monetary Affairs Commissioner Olli Rehn said the health check would assess the risk of a bank struggling to get credit or savers withdrawing deposits and not just how it would cope with a severe economic downturn or a possible sovereign default.
"One of the lessons learned is that we have to have a liquidity assessment in these stress tests next time around," Rehn told a news conference.
Irish government bonds were one of the very few to record falling yields, down 0.09pc on reports that yesterday's Budget would pass in the Dail. Yields on US, German and UK bonds all went higher as fears grew about the implications of the euro area debt crisis.
All 27 European Union finance ministers formally endorsed a €85bn euro EU/IMF assistance package for Ireland, clearing the way for the first loans to flow to Dublin once a tough austerity budget passes the Dail.
The UK's fourth-largest investment fund, Legal & General, has said it will not buy more Spanish government bonds unless the ECB takes the lead. "Next year, we are going to focus on economic growth which is important, especially for Spain," said investment manager Jonathan Cloke.
"There remain many doubts about the health of the Spanish banking system and growth is likely to be mediocre next year. Growing out of its debt burden is not going to be easy."
ECB executive board member Juergen Stark said it was not the ECB's role to finance state debts. "Each country needs to be held responsible for its own debt. We are not experiencing a currency crisis, but a crisis of state financing," Mr Stark said. (Additional reporting Bloomberg)