FRANKFURT (MNI) – The European Banking Union will not take over any
legacy debts since that would set the same bad incentives that
contributed to the current crisis, Bundesbank Board member Andreas
Dombert said Friday.
“As the regards the banking union, I will have to disappoint hopes
in some quarters that this will create an instrument for sharing past
burdens,” Dombret said. “Risk pooling could only be conceivable for the
future, but definitely not for losses that accrued under national
supervision.”
In a speech text entitled “Banks and Trust,” Dombret stressed that
individual responsibility both of banks and of national governments
should be strengthened. Taking over legacy assets would run against this
principle, he argued.
“We need a clear set of rules for both the financial system and the
monetary union, that avoids setting flawed incentives,” he said. “For
one, the strong link between the banking and sovereign risks must be
avoided. Secondly, the principle of subsidiarity must be strengthened
further.”
Dombret warned that while the European Central Bank’s massive
liquidity injections and possible future bond buys may alleviate market
pressure in the short-term, they will only reinforce the link between
sovereign and banking risks.
“The provision of central bank liquidity for a period of three
years initially removed a degree of pressure. But only briefly, because
it strengthened rather than weakened the links between the public sector
the banking system,” Dombret said. “There is no way around reform and
adjustments.”
“Bond buy programs increase the dependency, and firewalls are no
substitution for restoring solvency and investor trust,” Dombret
asserted. “This can only be reached through economic adjustments,
structural reform and balance sheet adjustments.”
–Frankfurt newsroom +49 69 72 01 42; e-mail: jtreeck@mni-news.com
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