As leaders in Greece and Germany continued to debate how to escape the sovereign debt crisis, the I.M.F. estimated bank risk stemming from the crisis at roughly €300 billion, or $412 billion. Political infighting is partly to blame, the I.M.F. said in its Global Financial Stability Report.
“Political differences within economies undergoing adjustment and among economies providing support have impeded achievement of a lasting solution,” the I.M.F. said.
As if to illustrate the point, the Greek government tried Wednesday to sell its lawmakers on adopting additional austerity measures being demanded by international lenders. Without more aid, Greece could go bankrupt within weeks if not days.
The measures include placing some 30,000 civil servants on a so-called labor reserve program in which their wages would be cut for 12 months, a government spokesman said. The program has been condemned by the political opposition as “a backdoor to layoffs.” Taxes will also be raised on pensions over €1,200 a month and on some pensions for those under 55.
In Berlin, where aid to Greece has become a highly divisive political issue, changes that would expand the main European bailout fund made progress through the German Parliament. But expansion of the fund still faces numerous hurdles, including ratification by other reluctant countries, like Finland.
In its report, the I.M.F. said that some European banks would need fresh capital as insurance against losses stemming from the debt crisis, and some weaker banks might need to be “resolved” or shut down. Taxpayers may again be called on to bolster the banking system, the I.M.F. said.
“Any capital needs should be covered from private sources wherever possible, but in some cases public injections may be necessary and appropriate for viable banks,” the fund said.
One of the most damaging side effects of the crisis has been a reluctance by banks to lend to each other because of doubts about each other’s solvency. The E.C.B. took further steps to address that problem Wednesday, saying it would ease the terms on which it lends to banks at low interest. Most banks must continually refinance their long-term obligations, and some would collapse without access to short-term credit.
The central bank said it would expand its definition of the collateral that banks can provide to receive central bank loans at the benchmark interest rate, which is 1.5 percent. The E.C.B. dropped a requirement that securities placed as collateral should also be traded on an official exchange.
At the same time, the E.C.B. placed further limits on how much of their own bonds banks can use as collateral. Analysts said the limit was intended mostly as a signal that the central bank had not unduly lowered its standards to ensure that banks did not run out of cash.
The E.C.B. is saying “they are not willing to accept all the trash out there,” Carsten Brzeski, a senior economist at ING, told Reuters.
Indicators that banks have been reluctant to lend to each other have been rising for months. In what investors take as a particularly bad sign, a small number of banks have been borrowing emergency dollars from the E.C.B. On Wednesday, one bank borrowed $500 million, stirring fears that a large bank had been cut off by U.S. lenders and might be dangerously close to collapse. The E.C.B. does not disclose the identity of bank borrowers.
On Tuesday, European banks arranged €201 billion in one-week loans from the E.C.B., the most they had borrowed since February. Heavy borrowing from the E.C.B. is interpreted as a sign that the institutions are having trouble raising money at reasonable rates on the open market.
Inspectors from the I.M.F., the E.C.B. and the European Commission were to return to Greece next week after two teleconferences this week with the Greek government. The commission said “progress was made” in the calls on an agreement to pave the way for the release of the next portion of aid, totaling €8 billion.
Article source: http://feeds.nytimes.com/click.phdo?i=9a499df56845b7104b95a4e2114abee1
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