By Maximilian Clarke
Regulatory and financial frameworks will not address the eurozone crisis, which is fundamentally a crisis of government spending and delayed action, the head of the British Bankers’ Association (BBA) has said.
“It is not possible to decide how much more capital some eurozone banks will need until the debt of the problem economies is quantified,” wrote the Association’s chief executive, Angela Knight.
Economic reform is the vital and unavoidable essential and first requirement of any attempt to resolve the eurozone crisis, she writes.
"It is not possible to decide how much more capital some eurozone banks will need until we quantify the debt of those problem economies. It works politically to decide the bank end of the argument, but it does not fool the market. Sovereigns can save banks, but banks can not save sovereigns."
Mrs Knight said this was one cause of the scepticism over the recent G20 agreement:
"One of the reasons why there remains so much scepticism about the G20 agreement at Cannes and the problems with raising the finance for the European Financial Stability Fund (EFSF) is because the economic steps required have not been taken. The agreement started at the wrong end of the problem: it decided how much capital some eurozone banks needed to raise before (a) it decided on how to resolve the Greek debt situation and before (b) it could come to any conclusions on how to underpin the debt of a number of other countries which had not solved their economic problems."
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