The European Central Bank (ECB) warned on Monday of a perilous year ahead as the sovereign debt crisis collides with slower economic growth and a dearth of market financing for banks.
The prediction, contained in the ECB’s twice-yearly report on the risks to the euro area financial system, came as EU governments fell short of target to expand backup plan for the euro by channeling more resources through the IMF.
The stresses on the European financial system are approaching or even exceeding levels last seen after the bankruptcy of Lehman Brothers in September 2008. For example, market perception of the risk that two large banks in the euro area could fail in the next year has surpassed the previous peak in 2009, according to the review.
However, the ECB avoided discussing the risk about the euro zone break-up.
“I have no doubt about the euro,” Mario Draghi, president, ECB, told European Parliament in Brussels. “The one currency is irreversible.”
A teleconference among EU finance ministers ended Monday with an agreement by euro zone nations to contribute around €150 billion, or $195 billion, through the IMF European leaders had committed to contribute “up to €200 billion” at a summit in Brussels on December 9.
Several negative developments are converging to raise tensions even higher than they already are, the ECB said. In the first three months of 2012, banks will need to roll over more than €200 billion in debt. Governments and firms also have high financing needs. Yet investors have become pessimistic about Europe, and the market for bonds issued by banks is nearly lifeless.
“The pressure that bond markets will be experiencing is very difficult if not unprecedented,” said Draghi.
The New York Times