Oct. 21 (Bloomberg) -- European Central Bank Executive Board member Jose Manuel Gonzalez-Paramo said recapitalizing banks is “crucial” to solving the euro region’s debt crisis.
A lasting solution “will require the decoupling of banks’ fortunes from the funding situation of their sovereign,” Gonzalez-Paramo said in a speech in Malaga today, according to a text published by the ECB. “In light of recent developments, swift recapitalizations of banks in a coordinated fashion will prove crucial.”
European leaders, due to meet in Brussels on Oct. 23, are under pressure to find a solution to the turmoil that has pushed Greece to the brink of default and is now threatening banks across the 17-nation euro area. The ECB has introduced a range of non-standard measures in an attempt to ease tensions on financial markets and ensure banks have access to liquidity, such as unlimited lending in its refinancing operations.
“Although this policy can moderate the symptoms of the crisis, it cannot provide the lasting solution to this crisis,” Gonzalez-Paramo said. “A lasting solution to the sovereign debt crisis must tackle its root causes.”
Gonzalez-Paramo said affected countries must improve their fiscal adjustments and implement structural measures aimed at promoting growth. The euro area will also need to develop more effective economic governance, and governments will have to “step up more decisively to preserve financial stability, which is their responsibility,” he said.
“If governments respond appropriately to risks to financial stability and banks reinforce and efficiently restructure their balance sheets, the ECB may have to be less concerned with non-standard measures to restore the monetary policy transmission mechanism,” Gonzalez-Paramo said.
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