A proposed fund to guarantee euro zone bank deposits would need massive firepower and the ability to borrow on financial markets with the guarantee of member states, ECB governing council member Christian Noyer said today.
Mr Noyer said that a movement towards a unified bank regulation system in Europe, backed by EU leaders at a summit last week, was an essential part of the solution to the euro zone debt crisis, together with a sustained emphasis on fiscal consolidation and policies to stimulate growth.
"The euro area needs a new and concrete leap towards stronger financial integration," Mr Noyer told a conference.
Last week's decision by EU leaders to create a single banking supervisor, based around the ECB, was seen as a landmark first step towards a European banking union, that could help shore up struggling member Spain.
Leaders also agreed to let euro zone rescue funds inject aid directly into stricken banks from next year, but there was no commitment on creating a joint deposit guarantee or common resolution fund to avert capital flight and taxpayer losses.
Speaking in Paris, Mr Noyer called for "a deposit guarantee scheme, with massive firepower, provided that it could collect an annual contribution from all euro area banks and could borrow on the markets with a supranational guarantee".
He also urged unified supervision of all euro zone banks, not just big ones, headed by the ECB but with day-to-day implementation carried out via national central banks.
Mr Noyer said the third pillar of the proposed "banking union", a unified banking resolution scheme, could have either a separate fund or be mixed with the bank guarantee fund.
With Europe's economy more reliant on bank lending than market-based economies like the United States, Mr Noyer said a return of confidence in the banking system was essential to stimulate growth and remove doubt over whether member states would be forced to take on more debt to prop up weak banks.
However, he said that the solution to the euro zone crisis must stem from national governments cutting their deficits and putting a credible fiscal framework in place.
"The efforts already made on the fiscal front by the individual countries of the euro area are bearing fruit," he said, adding that he believed that budget consolidation and growth were mutually reinforcing.
"The confidence and financial benefits of fiscal consolidation far outweigh its negative effects on effective demand in the short-run. It is of the essence that all the efforts on this side be decisively pursued," he said.
Reuters
