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Eurozone faces 'lost decade'
The eurozone faces a Japanese style "lost decade" unless action is taken to address the deep-seated problems of its banks, ratesetter Benoît Coeuré has warned. Troubled bank balance sheets had the potential to choke the engine of recovery in the 17-nation bloc, and exert a more persistent drag on economic growth, said Mr Coeuré, who sits on the executive board of the European Central Bank (ECB).Mr Coeuré said ailing banks had to be repaired or shut down. Failure to do so could result in a decade of stagnant growth in the eurozone, similar to Japan in the 1990s. He said the eurozone crisis risked creating a Japanese-style wave of zombie banks in which lenders, fearful of falling foul of capital rules, chose to evergreen - or roll over - bad loans instead of recognising losses on their books. This had led to the perverse practice of banks extending credit to insolvent borrowers, rather than lend to creditworthy firms, said Mr Coeuré. Banks then gambl[ed] on the hope that [firms] would recover or that the government would bail them out. Mr Coeuré called on leaders to complete the steps needed to implement the eurozones banking union. He also said measures were needed to tackle youth unemployment. Posted by: Pappy 2013-07-07 |
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