PRESS CONFERENCE:THE INVESTIGATION of the health of major European Union banks did not probe the impact of a sovereign debt default by a Eurozone country because such an examination would have been "self-contradictory", European Central Bank vice-president, Vitar Constancio said last night.
Ruling out the prospect of a sovereign debt default, Mr Constancio, speaking in London, rejected charges that the credibility of the stress test has been damaged by not examining the effects of such a crisis on the health of Eurozone banks.
“The measures taken lead to our conviction that on the basis of those measures there will be no default, so it would be totally contradictory to what Europe has done and decided – surprising the markets by its capacity to decide such important sizeable and bold measures – then on top of that to assume a default,” he said.
“But all the information that the market would require to make that assessment is there. There is transparency . . . it would be totally self-contradictory having taken such sizeable and significant measures to assume a default. So we should not do that and we did not do that.
“If the market wants to know that then the market can make that calculation very simply with the information that we have provided. We don’t believe on the measures that have been taken that there will be a default and we are not then considering it,” he said.
Emphasising that the stress test models the impact of major economic turbulence, Mr Giovanna Carosio of the Committee of European Banking Supervisors (CEBS) said they had examined banks holding 65 per cent of the assets in the Eurozone.
The model has just a 5 per cent chance of occurring, said Mr Constancio of the ECB, and it envisaged interest rates on national debts would rise significantly by 75 basis points for every Euro country, bar Germany – but by an extra 158 basis points for Ireland and 685 basis points for Greece.
Such an outcome, if it occurred, would mean that the probability of a sovereign debt default by Greece would increase by 365 per cent; by 147 per cent for Portugal and by 113 per cent for Spain, Mr Constancio said.
“This scenario has a very low probability of occurring,” the CEBS wrote in accompanying documentation.
Rejecting the contention that the impact of a sovereign debt default on banks should have been tested, Mr Marco Buti of the European Commission said the EU had agreed a €440 billion fund to safeguard against that.
“It is a system based on strong conditionality. These are not presents, these are not grants, they are not transfers, they are loans based on non-concessional interest rates and based on very strong conditionality in very credible programmes. It is not a subsidy. It is a way of propping up financial stability in the Euro-area,” he said.
