Association of German Banks’ President: buying time no longer enough – policymakers need to get serious about austerity measures
Berlin, 21 November 2011 - “Europe is at a crossroads”, said Andreas Schmitz, President of the Association of German Banks and Chairman of the Management Board of HSBC Trinkaus & Burkhardt AG, at a press conference held today following the meeting of the Association’s Board of Directors in Frankfurt. The debt crisis could no longer simply be resolved by adopting rescue mechanisms, however clever these might be. “Political solutions urgently need to be found”, Mr Schmitz added.
It was now vital that the countries concerned, especially Italy and Greece, actually started to implement the necessary budget consolidation measures and unavoidable structural reforms. “The days of buying time are over”, Mr Schmitz continued, particularly as market behaviour was changing. “We face a turning point in how public budgets and sovereign debt are assessed.” Banks, too, would no longer be able to automatically hold government bonds on their books in future. So far they had been a major source of public finance particularly because this is what countries had expressly wanted. But, according to Mr Schmitz, “the zero weighting undoubtedly set wrong incentives and should now be gradually replaced.”
Market pressure could well have a salutary effect on Europe, since “without the pressure, the last Italian government would probably still be in office delaying the required reforms.”
Mr Schmitz said it was now important for policymakers to at last regain the trust of investors, businesses and particularly citizens by taking clear-cut, long-term decisions. Any calls for the European Central Bank to permanently finance public budgets would contradict this aim. “They are instead tantamount to an attack on the idea of monetary union as a ‘stability union’.”
The ‘flash stress test’ carried out by the European Banking Authority (EBA) would, as things stand at present, also do anything but restore confidence. Instead, the successful efforts made by banks to strengthen their capital buffers would be undermined by the EBA’s action.
Mr Schmitz warned: “It doesn’t exactly help to build up trust if completely new requirements are conjured up more or less overnight, triggering a totally unnecessary debate on possible mandatory capitalisation.”
