Sir Mervyn King: debt crisis is causing a dangerous ‘dependence on central banks’ – Telegraph

Sir Mervyn King: debt crisis is causing a dangerous ‘dependence on central banks’ – Telegraph.

Sir Mervyn King: debt crisis is causing a dangerous ‘dependence on central banks’

Sir Mervyn King has used his position as vice-chairman of Europe‘s “early warning watchdog” to warn that the developing debt crisis is causing a dangerous “dependence on central banks”.

10:24PM GMT 22 Dec 2011

Just a day after the European Central Bank (ECB) provided a record €489bn (£407bn) of cheap loans to banks, the Governor of the Bank of England said the crisis had been made worse by “negative interlinkages”. He added: “Dependence on central banks has risen and signs are intensifying that stressed financial conditions are passing through to the real economy.” Sir Mervyn was speaking in Berlin following a meeting of the European System Risk Board.

His comments were taken as a view on the ECB’s radical refinancing operation unleashed on Wednesday. The action, which saw 523 banks borrow nearly half a trillion euros, is known as the “Sarko trade” after French leader Nicolas Sarkozy said the liquidity would allow each state to “turn to its banks” for finance. Economists have warned that making banks buy risky sovereign debt will not help the crisis.

But European markets were buoyed by the liquidity injection. In France the CAC rose 1.36pc and German DAX ended the day 1.05pc higher. In London, the FTSE 100 climbed 1.25pc.

Sir Mervyn said the action would help in the short term but called for longer-term solutions, including getting the European Financial Stability Facility (EFSF), the so-called “big bazooka” bail-out fund, up and running.

[…]

Read the full story here: The Telegraph

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1 Comment

Filed under Britain, Euro crisis, European Union, finance

One response to “Sir Mervyn King: debt crisis is causing a dangerous ‘dependence on central banks’ – Telegraph

  1. Pit

    The EFSF is, as far as I know, NOT the “big bazooka”. That term refers to the ECB “printing” money by buying up in unlimited amolunt state debts as a lender of last resort.

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