EU 'may have to recapitalise bank sector'

Wed, Oct 17, 2012, 01:00

THE BURDEN OF recapitalising European banks may have to be taken on by the European Union, a senior German banker told a meeting in Dublin yesterday.

Dr Joachim Faber, chairman of the supervisory board of the Deutsche Börse and a senior adviser to Allianz SE, said that such a measure was “very difficult” from a policy point of view, but Europe will “probably have to be pragmatic”.

Dr Faber, who was appointed to the board of HSBC Holdings plc earlier this year, told the inaugural meeting of the Institute of Directors’ “Thought Leadership Series” that a prudent regulatory regime will have to accompany any such move.

He said Ireland’s deficit reduction plan probably needed some unconventional measures to make it manageable. Otherwise the risk was too large that the plan would not succeed and that Ireland would not have growth but rather more contraction.

German industry had a very clear understanding of the competitive benefits that accrued to it as a result of being in the euro, he said, and it was very vocal on the matter.

He said the German chancellor, Angela Merkel, has a very good sense of what the majority in Germany was thinking. He said the views of the population had shifted considerably under her leadership over the past two years and he had “no doubt but that Germany will shoulder its responsibilities”.

Outside Europe, there was a general view that the EU was a matter of months away from “going under”, but he believed the EU was as much an opportunity as it was a problem. However, Europe needed to be ready for a major step forward. The entire union was in danger of being undermined if necessary structural reforms were not introduced.

It was clearly not in Ireland’s interest to see a return of nationalism and protectionism. He said critics of globalisation needed to remember that in 1990, 1.8 billion people lived on less than $1.25 a day. At that time the world population was 5 billion. Now there are 1.1 billion people living on less than $1.25 a day, and the global population has grown to 7 billion.

Dr Faber said Europe should hold on to its principle of social protection but that social welfare should not undermine the incentive to work.

He said changes such as a fiscal union were required and that politicians had to convince the European people of this. He noted that in the second election in Greece this year, the people had voted to stay in the European Union and that similar decisions would happen elsewhere in the union.

It was “almost untenable” that five years into the financial crisis there was still no clarity on banking reform. The industry itself was completely passive and this was unacceptable. It was dangerous that the industry was simply opposing new measures.

“Bank bashing” was an everyday occurrence in society but Europe needed growth and someone had to finance it, so banks were needed. Dr Faber said he was against the financial transaction tax and surprised that so many countries had come out in favour of it.