Brussels, 17/01/2012 (Agence Europe) - The chair of the European Systemic Risk Board (ESRB), Mario Draghi, said on Monday 16 January at an evening hearing at the European Parliament that the sovereign debt situation in Europe was very serious but stabilisation was perfectly possible. He said that the uncertainty about the affordability of some countries' debt and the anaemic economic growth forecasts had generated serious disturbances on the financial markets in 2011 that had had an impact on the real economy, but stabilisation was perfectly possible through three types of action - national plans to consolidate public spending were operating in an encouraging way; structural reforms to stimulate growth were needed to contain the short-term recessionary impact of the public spending cuts; and strong firewalls are needed in this period of substantial public debt and fragile financial markets.
Draghi called for the strongest eurozone nations (Germany, Finland, Luxembourg and the Netherlands) to boost the European Financial Stability Facility (EFSF), whose credit rating has now been downgraded because France and Austria have lost their coveted AAA rating (the top rating, see EUROPE 10532). Giving the EFSF greater powers will help with the recapitalisation of European banks, which must not be achieved to the detriment of the real economy.
Credit ratings. What should the European Parliament focus on in the move to tighten EU legislation on credit rating agencies, wondered Jean-Paul Gauzès (EPP, France). The head of the ECB said that supervisors should learn to do without credit ratings, or at least avoid accepting them automatically from ratings agencies. He said that on Friday, the markets had reacted ahead of the news of S&P's downgradings, and anything that will increase compeitition for the Big Three would be welcome.
French Liberal MEP Sylvie Goulard, who was very active in getting the ESRB set up as part of the overhaul of financial regulations in Europe, said she didn't really recognise the ESRB because it is still a matter of coordinating the activity of national authorities. Draghi told her the ESRB was now in the European dimension, but if countries want to introduce tighter legislation at home, like greater capital requirements for banks, then they have to be allowed to do so in the most coordinated manner possible. The Commission has suggested strong harmonisation of bank capital rules (the CRD4 legislation), but countries like the United Kingdom are demanding to be allowed to go further.
The ESRB has published special recommendations for macroeconomic supervision authorities and on dollar finance for banks. (MB/transl.fl)