Euro 'virus' threat to the UK and world economy, Swiss-based financial watchdog warns
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UPDATED:
21:35 GMT, 24 June 2012
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 – such as China and India – 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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