Mervyn King’s European warning
At the Bank of England’s inflation report press conference this morning I asked the Governor, Mervyn King, whether he was satisfied with how his counterparts at the European Central Bank were handling the eurozone crisis, which King had identified as one of the main risks to the UK economy. I’d expected a forward defensive from the Governor (wary of commenting beyond his jurisdiction), but instead he drove the ball straight down the throats of eurozone politicians:
“The European Central Bank has gone to the outer limit of what a central bank can do and it’s quite clear…that any further action has really to be carried out by European governments themselves. You cannot expect a central bank to engage in credit allocation decisions and to be a substitute for the inability to deal with the fiscal problems facing the euro area. That is a problem for governments, not central banks.”
Ouch! That leaves it pretty clear which players on the pitch the Governor thinks are letting the side down. The Governor has given Angela Merkel and Nicolas Sarkozy the central banker’s equivalent of Alex Ferguson’s hair dryer.
I also found this section of the Governor’s remarks rather interesting in the context of the eurozone mess:
“One way or another, the losses that were built up in recent years will have to be shared between creditors and debtors… within the euro area between creditors in the North and debtors in the South.”
So who are those “creditors in the North”? The answer is those French, German and UK banks that hold all that Greek, Italian and Spanish sovereign and private debt. The principle was established at the Brussels meeting last month that private holders of Greek debt will “share” the burden with Greek and European taxpayers. It rather sounds, though, like the Governor thinks there could be more burden sharing to come.Tagged in: banks, European Central Bank, eurozone, Mervyn King
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