BRITISH VIEW:BILLIONS OF extra EU loans for Greece and other countries struggling with mounting national debts, such as Ireland, will not solve the crisis facing the euro, Bank of England governor Sir Mervyn King has said.
Describing the crisis as a mess, Sir Mervyn, speaking in London, yesterday said: “Right through this crisis, an awful lot of people wanted to believe that this was a crisis of liquidity.
“It wasn’t, it isn’t. And until we accept that we will never find an answer to it.
“It was a crisis based on solvency or to be more precise, the build-up of very large amounts of debt where concerns crept in on the ability of the borrowers to repay that debt,” he said in remarks that expose differences between the ECB and the Bank of England.
“Providing liquidity can only be used to buy time. Simply the belief, ‘oh we can just lend a bit more’, will never be an answer to a problem which is essentially one about solvency,” he said, though he believed the risk posed by Greece to British banks is “remarkably small”.
Royal Bank of Scotland, which is 83 per cent owned by the British taxpayer, possesses €1.1 billion worth of Greek sovereign debt, while HSBC has €800 million, compared with the €5 billion held by France’s BNP Paribas and €3 billion by Germany’s Commerzbank.
In its first report, the financial policy committee chaired by Sir Mervyn warned that “conditions of severe stress” in the euro zone could expose France and Germany, thus increasing “the risk of losses to UK banks” because of their claims on France and Germany.
Meanwhile, former British prime minister Tony Blair said he believed the euro will emerge from its difficulties and that he still believed Britain should join if “the economics are right” at a future point.
Describing the problems facing the euro as “fundamental”, Mr Blair added: “They first of all need to make sure there’s some alignment of fiscal with monetary policy, across the single currency area.
“You’ve always got to do that with monetary union.
“I don’t think you need to harmonise tax rates, but I think you need to have a macro policy, some alignment, and this leads me to the second point – which is some of those countries in Europe have got to do fundamental reform,” said Mr Blair.
