Europe Reaches For Safeguards Against Massive Bank Runs

By Cornelius Nunev

Things may get worse before they get much better in the European financial crisis, Reuters reports. The European Central Bank is pressuring for a joint guarantee on bank deposits across the euro zone, amid fears that bank runs will spread like wildfire as investors head for the hills. Top economic official of the European Commission Olli Rehn cautioned that without extra financial discipline, Europe will descend into a financial chasm.

A few banking system worries

The euro currency has deflated to a two-year low against the United States dollar because of worries that Greece may not survive and Spain's banking system could collapse. Austrian and French bonds have 10-year yields at their low since the introduction of the euro, but European speculators are putting cash in nonetheless.

The Associated Press explained that Spanish banks moved a lot of cash in March faster than it has ever been seen since record keeping started in 1990. The fourth-largest bank, Bankia, lost a lot because of a real estate crash, which brought on it to be nationalized. Spanish banks have lost $82 billion in recent months in capital.

Bailout plan refused

Christine Lagarde is the IMF Managing Director. She explained that there are no plans for a Spanish bank bailout. The rumor started because it might help defend Europe's economy a little bit.

"There is no such plan. We have not received any request to that effect and we are not doing any work in relation to any financial support," said Lagarde.

At the same time, there is a June 17 Greek general election that will determine the nation's future when it comes to the euro zone. The SYRIZA leftists are not winning right now; the New Democracy party is winning, and that party is for bank bailouts. Ireland voters want the European Union to help out a bit, according to the New York Times, which is why it wants the government to approve a referendum.

Trying to find clarity

The ECB will not write economic policy for the entire euro zone; European leaders have to figure out where the nations stand quickly, according to European Central Bank President Mario Draghi.

"We will avoid bank runs from solvent banks. Depositors' money will be protected if we build this European guaranteed deposit fund. This will assure that depositors will be protected," said Draghi.

While the ECB is pushing for a joint deposit guarantee for depositors, Germany is not sold. As the paymaster of the European Union, Germany has been unwilling to risk more of its own taxpayers' cash to prop up the union. German Chancellor Merkel said Europe should consider all options.

"There are integration steps which will require treaty changes. We are not at that stage today but nevertheless there are no taboos," she said at a news conference.

Warning cannot be used

The European financial crisis has caused financiers to be really concerned at this time, according to Draghi. Unfortunately, that must not translate into caution.

"I urge all governments to keep this in mind, because it is better to err by too much in the very beginning rather than by too little," he said, citing the recent failures of Spain's Bankia and the French-Belgian bank Dexia.

About the Author:

How often have you expected additional information on where to findpayday loan consolidation, and turned to an internet search on "instant payday loans online?" Your search is over, all the information and facts you need is at http://MatchFinancial.com.