European Central Bank president Draghi backs SLUSH FUND to prop-up failing European banks

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Posted on May 13 2018 - 9:50pm by admin

Mr Draghi has thrown his weight behind French President Emmanuel Macron’s calls for a rainy-fund to solve the issue of crumbling Eurozone banks by offering them additional financial support.

The fund would act as a kitty to bail out struggling banks who got into trouble by financial ineptitude.

Mr Draghi said: “The people of Europe have come to know the euro and trust the euro.

“But they also expect the euro to stability and prosperity it promised.

“Our duty, as policymakers, is to return their trust and to address the areas of our union that we all know are incomplete.”

The proposal was met with fury by Germany, with politicians fearing better off states would foot the bill for crumbling member states’ losses, the Financial Times reports.

But Mr Draghi shrugged this off, and said sharing risks between member states could also help risk reduction in the long-run.

He also said having a backstop in place will encourage more business investment across the bloc instead of with member states domestically.

Mr Draghi said: “The crisis showed clearly the potential of some euro area economies to become trapped in bad equilibria.

“And plainly, as log as this risk exists, it will act as a deterrent to cross-border integration, especially or retail banks that cannot cut and run as soon as rescission hits.”

Mr Macron first shared his vision in the German border town of Aachen on Thursday where he pleaded with Berlin for “a stronger eurozone more deeply integrated with its own budget allowing for investments and convergence”.

Mr Draghi concluded that a rainy-day fund would also install confidence in Brussels’ ability to contain financial turmoil.

He said: “Public risk-sharing though backstops helps reduce risks across the system by containing market panics when a crisis hits.”

The proposal follows news the EU’s banking system has £910billion worth of bad debt stemming from toxic loans from lenders in an attempt to break a financial cycle of falling profits.

With the lack of a proper market for the selling of bad loans, banks have been reluctant to offload them and accept a price below market value.

Some 10 EU states have an average bad loan ratio of 10 percent, including Italy which has over a quarter of the EU’s debt, which is valued at an eye-watering £237bn.

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