By James Salmon
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The ‘virulent’ European crisis could infect the UK and the global economy unless governments take urgent action to tackle their problems, one of the world’s leading financial watchdogs has warned.
In its grim diagnosis the Bank for International Settlements (BIS) said the chaos spreading across the single currency block could be a ‘harbinger’ of a global meltdown.
It urged leaders to tackle the ‘vicious cycle’ of debt and instability in the banking system that is ‘bedevilling Europe’ and called for a pan-European banking system to restore confidence.
The Bank for International Settlements said the chaos spreading across the single currency block could be a 'harbinger' of a global meltdown
The Swiss-based watchdog said: ‘At its root the European crisis is a potential harbinger, a virulent and advanced convergence of the problems to be expected elsewhere if policy fails to break the vicious cycle of sectoral imbalances, excess leverage, public over indebtedness and overburdened central bank.’
It said governments throughout Europe had failed to address the root cause of their problems, including reducing debts that built up during the credit binge preceding the crash and making the banking system safer.
And it warned that the outlook for other countries â€" such as China and India â€" which rely heavily on exports could ‘darken quickly’.
There is growing evidence that the euro crisis is infecting the global economy, with US manufacturers suffering their worst month since July last year, output from Chinese factories declining and Britain in the grip of its first double dip recession since the 1970s.
The watchdog said common banking rules would shore up confidence in the euro because savers and depositors would no longer have reason to flee lenders they fear may fail. Panicking savers and businesses pulled more than €31billion out of Greek banks in the first three months of the year, with Greek lenders losing around 30 per cent of their deposits since the start of 2010.
‘The conclusion is hard to escape that a pan-European financial market and a pan-European central bank require a pan European banking system,’ said the report.
Banks also came under fire for returning to the high risk gambles that contributed to the financial crisis. In a thinly veiled swipe at the $2billion trading loss announced by US investment bank JP Morgan, it added: ‘Recent heavy losses related to derivatives trading are a reminder of the dangers associated with such a development.’
David Buik, from broker BGC Partners said: ‘European leaders are bordering on immoral. The only way out of jail is for Germany and France to step up to the plate and run Europe. Without concrete action Europe will be in the vortex of despair for ten years, with huge civil unrest.’
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The UK virus is a big thread to the Euro!!!! Stop talking about the euro crisis, we have not had any other securities for our economy for 3 decades, so did US, China, India and the BRICS!
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I'll believe the meltdown when I see it because so far the euros had more lives than 3 cats, that said I'm really glad I joined that gun club when I did and learning to prepare deer and game for eating sure could come in handy
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The Eurozone can't really recover until the Euro is a whole lot weaker (-75%) and debts are defaulted. Germany are worried that the issue of any Eurobonds would involve them paying more for credit where other countries pay less. You don't pay more for credit if you don't WANT credit: Thus Germany's answer should surely be issuing cheap credit to help their poorer neighbours. If they don't want to do this, then they should renounce the role of "Europe's Bankers" I think. The Euro, despite weakening recently, is still WAY above it's issue price, and is prevented from total collapse by those biggest holders of it's debts - the far east, especially China. They prop up the currency to make sure they get repaid in hard currency. Never mind if it puts 25%+ of people out of work. Indeed, Spain is already there gains the most from a Euro devaluation. WE would gain in this country if we stopped giving out freebies to anyone who has not paid into OUR system their whole lives.
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And the prize for pointing the blinding obvious goes to the ..... BIS!!!!! If governments spend more than they raise in taxes (like France, now entering its 39th year of doing just that) then it will end badly. BTW the UK isn't far behind!
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