ECB WARNING:The Euro might be affected by the losses of the private sector

V. RIBANA (Translated by Cosmin Ghidoveanu)
Ziarul BURSA #English Section / 14 octombrie 2011

The Euro might be affected by the losses of the private sector

"Credit Suisse": At least 66 European banks would not pass new stress tests

The European Central Bank (BCE) yesterday warned again that any form of reduction of a country"s debt, which forces the private sector to take on losses, might affect the Euro, and the banks in the region, respectively.

The ECB officials say: "The non-voluntary involvement of the private sector might affect the international reputation of the single currency, and could increase volatility on the currency markets. International public and private investors in particular may become wary of investing a significant part of their wealth in assets denominated in a currency owned by a state which might not honor its commitments".

The ECB also reiterated its fears over the impact that a reduction in the value of government bonds might have on banks. "The involvement of the private sector could have direct negative effects on the banking sector of the Eurozone. This could spark off a new recapitalization in the banking system", according to the ECB.

The statements of the ECB officials come as the Eurozone is seeing talks on raising the haircut on the holdings of Greek government bonds, above the level of 21% set in July.

Credit Suisse: Major European banks might need 220 billion Euros in additional capital

At least 66 major European banks could fail the revised (harsher) stress tests and might need 220 billion Euros in additional capital, according to a study by "Credit Suisse" AG.

According to the study, "Royal Bank of Scotland Group" Plc (RBS), "Deutsche Bank" AG and "BNP Paribas" SA would need the most funding, with a total of 47 billion. They are followed by "Société Générale" SA and "Barclays" Plc, each with a need of 13 billion Euros. The analysts of "Credit Suisse" said: "We consider the recapitalization of banks a step in the right direction, even though, at this stage, even if market optimism were to improve, we are going to remain cautious until we have more details. We may hear some proposals in the coming days and weeks, but their implementation might take more than expected".

In a resolution issued yesterday, the European Parliament has asked the European Commission to draw up a plan to exit the crisis, which involves: the recapitalization of European banks, the continuation of the harmonization of the national fiscal systems, the introduction of European public bonds, and the consolidation of the economic governance on an EU level for countries in the Eurozone. Deputies want a precise schedule in this respect. "The plan must not use intergovernmental instruments and must be handled entirely by the institutions of the EU", the deputies said.

The European parliament believes that the recapitalization of the European banks must take place at the EU level and not rely on national priorities. Furthermore, European deputies believe that the creation of a system for issuing common public European bonds, (Eurobonds), with a solitary liability regime, before the end of 2011. The resolution will be sent to the European Council which will meet in Brussels, on October 23rd.

"Deutsche Bank" opposes recapitalization

"Deutsche Bank" AG, the largest German bank, opposes the plan of the president of the European Commission, Jose Manuel Barroso, which requires banks to increase their capital. The general manager of the German bank, Josef Ackermann, considers that such a measure would not increase the real problem of the economy.

The Eurozone might reenter recession, and the European Central Bank, (ECB) will discuss cutting the policy rate in November, officials of the institution are saying, according to Reuters.

However, Erkki Liikanen, member on the Board of Governors of the ECB, stressed that the bank hasn"t yet decided to lower the key rate at its November meeting on the monetary policy rate.

Slovakia approves the extension of the EFSF

Yesterday night, Slovakia approved the expansion of the European Financial Stability Fund (EFSF), which makes it the last state to give its agreement on the matter.

Out of the 147 parliament members who voted, 114 were "in favor", 30 "against", and three abstained. The main political parties in Slovakia have agreed to support the expansion of the EFSF after the Parliament of the country had rejected this approach on Tuesday. The opposition of Slovakia has agreed with the coalition in power to vote in favor of the EFSF, in exchange for early elections in March 2012.

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