PARIS (MNI) – Europe must avoid falling into the trap of treating
bank liquidity problems as solvency issues, European Central Bank
Governing Council member Carlos da Silva Costa said here Tuesday.
Speaking at a conference on banking, hosted by The Economist,
Silva, who is governor of the Bank of Portugal, studiously avoided any
mention of his own country’s difficulties, choosing to speak only in
general terms about the Eurozone debt crisis. He also declined to answer
questions about Portugal as he left the conference.
Without mentioning any EMU country by name, Costa said what was
important was for a country to undertake adjustment programs that put
them on a “sustainable” path and, if necessary, to get “the cash flow
needed” any financing shortfall.
“I hope we can avoid the problem of regarding liquidity problems as
solvency problems,” Costa said. “It is my opinion that the way the EU is
pursuing this is a good way, because we are looking more to liquidity
problems than solvency problems.”
Costa said one of the problems behind debts incurred by banks is
that before the crisis many of them were borrowing short-term to cover
long-term obligations. He said he was well aware of that because as a
bank executive at the time, he was under pressure to do the same thing,
because short-term funds were cheaper.
Speculation is growing in financial markets that Portugal will be
the next country, after Greece and Ireland, to seek an aid package from
its European partners. Yields on 10-year Portuguese bonds are well above
7%, the level at which financing in the market is considered
unsustainable.
More recently, Portugal’s main opposition party in Parliament said
it would not support a new budget cutting plan announced by the
government in Lisbon earlier this month. If the plan does not pass, many
observers think Portugal might be forced to seek a bailout package
sooner rather than later.
–Paris Newsroom, +331-42-71-55-40; bwolfson@marketnews.com
[TOPICS: M$$EC$,M$X$$$,MGX$$$,M$$CR$,MT$$$$]
