DAVOS, Switzerland (MNI) – Europe’s public sector may need to
participate in the haircut applied to Greek sovereign debt, Bank of
Canada Governor Mark Carney said Saturday.
During a panel at the Annual Meeting of the World Economic Forum,
Carney was asked whether the European Central Bank should abandon its
stiff resistance to participating in the debt reduction deal being
negotiated between Greece and its private sector creditors.
“The size of the aggregate haircut [on Greece's debt] has to lead
to a credible debt sustainability analysis, full stop,” he said. “And if
that requires fuller participation from the private sector, and
potentially from the public sector, so be it.”
Assessing the global expansion, Carney called it “a 3%-growth
world” with the U.S. expanding at 2% and China at around 8%. “We’re all
going to feel this [slowdown], and that’s in a world where this crisis
is contained — and containment is different from resolution.”
There is much work to be done but “a great deal” of uncertainty
interfering, he said. One bright spot is the recent efforts of the
European Central Bank, he said. The ECB’s most recent initiatives have
“absolutely taken tail risk out of the financial system, which is
incredibly important,” Carney said. “There is not going to be a
Lehman-style event in Europe.”
The financial system “is much healthier as a whole than it was in
2008,” Carney assessed, even if there is probably too much liquidity
being held directly in the financial sector.”
However, one way in which the financial system is more resilient is
less positive, he added, noting that “the contingency measures that
institutions are taking for the possibility of an adverse outcome in
Europe and elsewhere are holding back” lending.
Moreover, it is “one of the disturbing developments right now,” he
said, that “the European financial system is starting to re-nationalize.
That’s incredibly inefficient.”
–Frankfurt bureau tel.: +49-69-720142. Email: dbarwick@marketnews.com
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