ECB official warns of capital outflows
By Sarah Collins | Thursday 07 June 2012
A European Central Bank official has said that foreign investors will pull much-needed capital out of the eurozone economy if they are not immediately reassured that the 17-member bloc will stay together. “We are facing a sudden stop of capital inflows from the rest of the world, something we thought was only possible for small developing countries elsewhere in the world,” said Frank Moss, director-general for international and European relations at the Frankfurt-based ECB. “Markets outside the euro area haven’t a clue where the euro area is headed politically.”
Moss, who insisted that he was not speaking for the ECB itself, said that to avoid financial “disintegration,” leaders needed to create a “financial markets union,” including a euro bank resolution fund backed by the European Stability Mechanism, the eurozone’s rescue fund. He also called for an insurance scheme for bank deposits, temporarily financed by governments, and a bank levy that would eventually serve to pay for both funds.
He made the comments at a conference on fiscal union organised by the European Economic and Social Committee, on 7 June. At the same event, EESC President Staffan Nilsson called for the EU to introduce eurobonds to counteract the swingeing austerity and increased intrusion in national budgets that is being asked of governments. “The huge fiscal consolidation efforts in many member states will only be sustainable if they directly result in lower interest rates on public debt,” Nilsson said. “Eurobonds are therefore an essential element in an architecture that needs to guarantee fiscal discipline by individual member states while shielding them from excessive spreads on sovereign debt.”