Friday, November 21, 2014

Possibility Of Bank Runs Has Europe Preparing For The Most Unfortunate

By Cornelius Nunev

The European economic crisis is far from over. The European Central Bank is calling for greater amounts of depositor insurance to help reduce bank runs. Without it, the ECB states, the financial chaos will spread virally.

Fears with banks

Worries about whether Spain's banking system will fail and whether Greece will survive in the euro area at all have deflated the value of euro currency to a two-year low against the U.S. dollar. Looking for a comparatively secure investment, European speculators have funneled their money into Austrian and French bonds, whose 10-year yields are at their low mark since the introduction of the euro.

Spanish banks moved massive amounts of money abroad in March at a rate faster than has been recorded since record-keeping of such transactions started in 1990, notes the Associated Press. The nation's fourth-largest lender, Bankia, reportedly was nationalized in May due to huge losses following a real estate crash. As much as $82 billion in net capital has been lost by Spanish banks in recent months.

Not giving the help requested

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 guard Europe's economy just 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.

A referendum in Ireland would make it easier for the European Union to offer aid to Ireland voters, according to the New York Times. There is also an election in Greece on June 17 that will go a long ways towards to euro zone for the country. Right now, the bank bailout favoring New Democracy party is beating the SYRIZA leftists, which is a good thing for people who want bank bailouts.

Some clarity needed

According to Mario Draghi, European Central Bank President, nations have to be put in order with the Euro easily by European leaders. Not every person in the euro zone will get help and economic policy from the ECB.

"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.

Germany is well-known as a paymaster of the European Union and does not like the idea of a joint deposit guarantee for depositors that the ECB is pushing for. It is something German Chancellor Angela Merkel is not sure about. Germany has not been willing to put taxpayer dollars into the union in the past.

"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.

No warning required

It is not a good idea to stay cautious at this time, according to Draghi, although financiers are really worried due to the European financial crisis.

"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.

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