HELSINKI (MNI) – Should banks fail to get the capital they need,
there is a risk of a recession in Europe as credit dries up, European
Central Bank Governing Council member Erkki Liikanen said Friday.
Speaking before Finnish parliament, the head of the Bank of Finland
noted that “lending is getting tighter.”
“The key issue is whether banks get additional capital If banks do
not get capital, there is a threat of credit recession,” he said.
“Banks need more capital as markets demand larger capital buffers,”
he said.
With “governments in trouble,” he asserted, “banks are more
vulnerable.”
Liikanen described the current period as “post-upswing” and urged
that expectations for growth and employment be adjusted accordingly
downward.
The ECB will nevertheless not pre-commit itself to any possible
future interest rate decisions, he made clear.
Turning to the sovereign debt situation on Europe’s periphery,
Liikanen observed that “when talking about the Spanish situation, one
must keep in mind that the government debt rate is still much lower than
in the U.S.”
“Also, he continued, reforms are being made to better the economic
situation” in Spain.
“The Italian problem is slow growth,” he said.
Noting that the ECB adheres to the relevant statutes carefully and
does not purchase government bonds on the primary market, Liikanen said
monetary authorities thus do not involve themselves in national fiscal
policy.
“Every nation can choose it’s allocation and amount of public
expenditure, for instance on education and the healthcare system,” he
said. Each government must take the responsibility for financing itself
and that responsibility cannot be shifted to another institution, he
said.
The SMP program is temporary, he reiterated.
Liikanen said the ECB would hold its bonds until maturity and was
not concerned by the daily moves of relevant market rates.
–Frankfurt bureau tel.: +49-69-720142. Email: frankfurt@marketnews.com
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