Financial crisis and the EU: how to restore trust

Financial crisis and the EU: how to restore trust Rebuilding Europe's Financial Confidence How can Europe rebuild confidence in its financial markets and institutions? The role of the European Central Bank is discussed, especially in the EU institutions and its monetary policy of quantitive easing. Since the US Federal Reserve Bank changed tack and raised interest rates for the first time in nearly a decade, the European Central Bank (ECB) and its quantitative easing (QE) strategy – a trillion-euro programme to buy bonds – have come under more scrutiny. “The ECB policy is working, QE is working,” insisted Benoît Coeuré, Member of the ECB's Executive Board. “We've seen a tremendous improvement in the Eurozone's capital markets and banking markets; funding costs are down, funding volumes are up and accelerating. We want to make QE work on a continuous basis,” he said. The financial sector, which is still trying to cope with the fallout from the 2008 global market meltdown and the Eurozone crisis, is looking for policy and regulatory clarity and cooperation among national governments, Coeuré observed. The daunting challenge: coping with the banking and capital markets union and new banking rules aimed at preventing another crisis. Banking chiefs are worried that banks will have a hard time turning a profit. Axel A. Weber, Chairman of the Board of Directors, UBS Group, went so far as to criticize QE: “We understand that there may be no limit to what the ECB is willing to do, but there is a very clear limit to what QE can and will achieve. That’s the problem – that monetary policy has largely run its course. Further stimulus by reducing interest rates even more into the negative, hinted at by ECB President Mario Draghi in a Frankfurt press conference the day before he appeared at Davos, would be “tampering with fate,” reckoned Weber. “There is a risk that you may actually drive cash out of the economy if you start taxing deposits.” On top of that, some banks remain under a cloud, with worries about their non-performing loans (NPLs) lingering due to persistent worries about contagion. Italy and Portugal have been the focus of attention. Italy has considered setting up a “bad bank” to clean up bank balance sheets and is also trying to turn around sentiment by pushing forward structural reforms. Playing the role of responsible technocrat, Pier Carlo Padoan, Italy’s Minister of Economy and Finance, echoed Draghi’s assertion made earlier in the same Davos session that the central bank should not have to shoulder all the work and that national governments have to pursue structural changes in tandem. Italy is reforming its labour market with some success and is poised to take measures to bolster the banking sector, Padoan noted. “My point is that on the impact of monetary policy, there is a division of labour here. National governments know very well that, to make the most of [the ECB’s] positive policy stance, we need to do our homework.” The minister conceded that Italy should have set up a bad-bank mechanism a long time ago. The Spanish took that course in response to the country’s banking crisis three years ago, Francisco González, Chairman and Chief Executive Officer of Banco Bilbao Vizcaya Argentaria (BBVA), recalled. “Spain has bitten the bullet for about three or four years by putting the house in order and we have taken very good decisions in mainly scrapping the failing banks and now the system is working much better,” he explained. But his country’s banks are still not fully out of the woods, he said. Banks have to take the low-interest, low-inflation conditions seriously. “Apart from this, there’s a big threat from digital disruption,” he warned, remarking that Europe’s banks are behind the curve on fintech innovation. This debate was developed in partnership with CNBC. Speakers: Geoff Cutmore, Francisco González, Lord Jonathan Hill, Pier Carlo Padoan, Benoît Coeuré, Axel A. Weber Topics: Global Economy, Global Finance I created this video with the YouTube Video Editor (http://www.youtube.com/editor) More info on: https://www.weforum.org/events/world-economic-forum-annual-meeting-2016/sessions/rebuilding-europe-s-financial-confidence Find me on Google+: https://plus.google.com/101008368651984597200 And on YouTube: https://www.youtube.com/channel/UCoS2gqkLY6M88GUQgmnbKuA And subscribe on YouTube!: https://www.youtube.com/channel/UCoS2gqkLY6M88GUQgmnbKuA?sub_confirmation=1 Website: http://europeanunionexplained.blogspot.com