euro zone fragmenting faster than eu can act
Last Updated : GMT 22:36:19
Arab Today, arab today
Arab Today, arab today

Euro zone fragmenting faster than EU can act

Arab Today, arab today

Arab Today, arab today Euro zone fragmenting faster than EU can act

Paris - Arabstoday

Signs are growing that Europe\'s economic and monetary union may be fragmenting faster than policymakers can repair it. Euro zone leaders agreed in principle on June 29 to establish a joint banking supervisor for the 17-nation single currency area, based on the European Central Bank, although most of the crucial details remain to be worked out. The proposal was a tentative first step towards a European banking union that could eventually feature a joint deposit guarantee and a bank resolution fund, to prevent bank runs or collapses sending shock waves around the continent. The leaders agreed that the euro zone\'s permanent bailout fund, the 500 billion-euro ($620 billion) European Stability Mechanism, would be able to inject capital directly into banks on strict conditions once the joint supervisor is established. But the rush to put first elements of such a system in place by next year may come too late. Deposit flight from Spanish banks has been gaining pace and it is not clear a euro zone agreement to lend Madrid up to 100 billion euros in rescue funds will reverse the flows if investors fear Spain may face a full sovereign bailout. Many banks are reorganizing, or being forced to reorganize, along national lines, accentuating a deepening north-south divide within the currency bloc. An invisible financial wall, potentially as dangerous as the Iron Curtain that once divided Eastern and Western Europe, is slowly going up inside the euro area. The interest rate gap between north European creditor countries such as Germany and the Netherlands, whose borrowing costs are at an all-time low, and southern debtor countries like Spain and Italy, where bond yields have risen to near pre-euro levels, threatens to entrench a lasting divergence. Since government credit ratings and bond yields effectively set a floor for the borrowing costs of banks and businesses in their jurisdiction, the best-managed Spanish or Italian banks or companies have to pay far more for loans, if they can get them, than their worst-managed German or Dutch peers. The longer that situation goes on, the less chance there is of a recovery in Southern Europe and the bigger will grow the wealth gap between north and south. With ever-higher unemployment and poverty levels in southern countries, a political backlash, already fierce in Greece and seething in Spain and Italy, seems inexorable. European Central Bank President Mario Draghi acknowledged as he cut interest rates last week that the North-South disconnect was making it more difficult to run a single monetary policy. Two huge injections of cheap three-year loans into the euro zone banking system this year, amounting to 1 trillion euros, bought only a few months\' respite. \"It is not clear that there are measures that can be effective in a highly fragmented area,\" Draghi told journalists. Conservative German economists led by Hans-Werner Sinn, head of the Ifo institute, are warning of dire consequences for Germany from ballooning claims via the ECB\'s system for settling payments among national central banks, known as TARGET2. If a southern country were to default or leave the euro, they contend, Germany would be left with an astronomical bill, far beyond its theoretical limit of 211 billion euros liability for euro zone bailout funds. As long as European monetary union is permanent and irreversible, such cross-border claims and capital flows within the currency area should not matter any more than money moving between Texas and California does. But even the faintest prospect of a Day of Reckoning changes that calculus radically. In that case, money would flood into German assets considered \"safe\" and out of securities and deposits in countries seen as at risk of leaving the monetary union. Some pessimists reckon we are already witnessing the early signs of such a process. Any event that makes a euro exit by Greece — the most heavily indebted member state, which is off track on its second bailout program and in the fifth year of a recession — look more likely seems bound to accelerate those flows, despite repeated statements by EU leaders that Greece is a unique case. \"If it does occur, a crisis will propagate itself through the TARGET payments system of the European System of Central Banks,\" US economist Peter Garber, now a global strategist with Deutsche Bank, wrote in a prophetic 1999 research paper. Either member governments would always be willing to let their national central banks give unlimited credit to each other, in which case a collapse would be impossible, or they might be unwilling to provide boundless credit, \"and this will set the parameters for the dynamics of collapse\", Garber warned. \"The problem is that at the time of a sovereign debt crisis, large portions of a national balance sheet may suddenly flee to the ECB\'s books, possibly overwhelming the capacity of a bailout fund to absorb the entire hit,\" he wrote in 2010, after the start of the Greek crisis, in a report for Deutsche Bank. European officials tend to roll their eyes at such theories, insisting the euro is forever, so the issue does not arise. In practice, national regulators in some EU countries are moving quietly to try to reduce their home banks\' exposure to such an eventuality. The ECB itself last week set a limit on the amount of state-backed bank bonds that banks could use as collateral in its lending operations. In one high-profile case, Germany\'s financial regulator Bafin ordered HypoVereinsbank (HVB), the German subsidiary of UniCredit, to curb transfers to its parent bank in Italy last year, people familiar with the case said. Such restrictions are legal, since bank supervision is at national level, but they run counter to the principle of the free movement of capital in the European Union\'s single market and to an integrated currency union. Whether a single euro zone banking supervisor would be able to overrule those curbs is one of the many uncertainties left by the summit deal. In any case, common supervision without joint deposit insurance may be insufficient to reverse capital flight. German Chancellor Angela Merkel, keen to shield her grumpy taxpayers, has so far rejected any sharing of liability for guaranteeing bank deposits or winding up failed banks. Veteran EU watchers say political determination to make the single currency irreversible will drive euro zone leaders to give birth to a full banking union, and the decision to create a joint supervisor effectively got them pregnant. But for now, Europe\'s financial disintegration seems to be moving faster than the forces of financial integration. From arabnews

arabstoday
arabstoday

Name *

E-mail *

Comment Title*

Comment *

: Characters Left

Mandatory *

Terms of use

Publishing Terms: Not to offend the author, or to persons or sanctities or attacking religions or divine self. And stay away from sectarian and racial incitement and insults.

I agree with the Terms of Use

Security Code*

euro zone fragmenting faster than eu can act euro zone fragmenting faster than eu can act

 



Name *

E-mail *

Comment Title*

Comment *

: Characters Left

Mandatory *

Terms of use

Publishing Terms: Not to offend the author, or to persons or sanctities or attacking religions or divine self. And stay away from sectarian and racial incitement and insults.

I agree with the Terms of Use

Security Code*

euro zone fragmenting faster than eu can act euro zone fragmenting faster than eu can act

 



Arab Today, arab today
Arab Today, arab today Jordanian woman reveals her project

GMT 00:46 2017 Saturday ,11 November

Jordanian woman reveals her project
Arab Today, arab today Air China suspends flights to North Korea

GMT 10:39 2017 Thursday ,23 November

Air China suspends flights to North Korea
Arab Today, arab today Sophian Yussef reveals suitable decoration

GMT 02:56 2017 Thursday ,23 November

Sophian Yussef reveals suitable decoration
Arab Today, arab today Syria opposition meets in Riyadh

GMT 06:23 2017 Thursday ,23 November

Syria opposition meets in Riyadh
Arab Today, arab today Jordanian journalist happy of her career

GMT 17:37 2017 Thursday ,23 November

Jordanian journalist happy of her career
Arab Today, arab today
Arab Today, arab today
Arab Today, arab today Australian academic's book pulled

GMT 15:20 2017 Monday ,13 November

Australian academic's book pulled
Arab Today, arab today Srebrenica women cry tears of joy

GMT 08:03 2017 Thursday ,23 November

Srebrenica women cry tears of joy
Arab Today, arab today Delhi half-marathon to go ahead

GMT 03:51 2017 Saturday ,18 November

Delhi half-marathon to go ahead
Arab Today, arab today The history of solar eclipses

GMT 05:16 2017 Sunday ,20 August

The history of solar eclipses
Arab Today, arab today 'Robo-taxis' hold promise, and perils

GMT 08:07 2017 Thursday ,23 November

'Robo-taxis' hold promise, and perils
Arab Today, arab today Honda recalls 800,000 minivans

GMT 11:43 2017 Wednesday ,22 November

Honda recalls 800,000 minivans
Arab Today, arab today Abeer Sabry reveals reason of “The Flood” success

GMT 08:03 2017 Tuesday ,21 November

Abeer Sabry reveals reason of “The Flood” success
Arab Today, arab today paObama climate envoy slams Trump's rejection

GMT 16:04 2017 Friday ,17 November

paObama climate envoy slams Trump's rejection

GMT 07:56 2017 Monday ,20 November

Singer Jahda Wahba has unlimited ambitions

GMT 02:14 2017 Saturday ,18 November

May under Brexit pressure at EU reform summit

GMT 18:41 2017 Friday ,20 October

Designer Aql Faqih aspires to innovation

GMT 11:38 2017 Wednesday ,15 November

Unloved vultures fight for their survival

GMT 17:52 2017 Sunday ,03 September

Etiquette expert underlines importance of gifts

GMT 10:43 2017 Wednesday ,22 November

Cigar-shaped asteroid came

GMT 09:45 2017 Tuesday ,21 November

Visit Jamaica for more than just sun

GMT 17:12 2017 Monday ,07 August

Al-Shawaifi reveals secrets of total solar eclipse

GMT 16:53 2017 Tuesday ,05 September

Youssra depended on colored foam
Arab Today, arab today
Arab Today, arab today
 
 Arab Today Facebook,arab today facebook  Arab Today Twitter,arab today twitter Arab Today Rss,arab today rss  Arab Today Youtube,arab today youtube  Arab Today Youtube,arab today youtube
arabstoday arabstoday arabstoday arabstoday
arabstoday arabstoday arabstoday
arabstoday
بناية النخيل - رأس النبع _ خلف السفارة الفرنسية _بيروت - لبنان
arabstoday, Arabstoday, Arabstoday