ECB, EU officials warn euro's survival at risk

Thu May 31, 2012 11:28pm EDT
 
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By Marc Jones and Jan Strupczewski

BRUSSELS (Reuters) - The European Central Bank stepped up pressure on Thursday for a joint guarantee on bank deposits across the euro zone, saying Europe needed new tools to fight bank runs as the bloc's debt crisis drives investors to flee risk.

The European Commission's top economic official, Olli Rehn, warned that the single currency area could disintegrate without stronger crisis-fighting mechanisms and tough fiscal discipline.

The twin warnings came as worries about Spain's banks and Greece's survival in the euro area pushed the euro to a two-year low against the dollar and hastened a rush into safe-haven assets such as Austrian and French bonds, whose 10-year yields hit a euro-era low.

Spaniards alarmed by the dire state of their banks moved money abroad in March at a faster rate than at any time since records began in 1990, official figures showed.

The 66.2 billion euros ($82.0 billion) net capital flight occurred before the nationalization of Spain's fourth biggest lender, Bankia, in May due to massive losses from a burst property bubble.

The head of the International Monetary Fund met Spain's deputy prime minister on Thursday and later denied a media report that the IMF was considering contingency plans for a Spanish bailout.

"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," IMF Managing Director Christine Lagarde said in a statement after the talks.

Irish voters seemed set to approve in a referendum a European budget discipline treaty vital to continue receiving EU aid. But the outcome of a second Greek general election on June 17, seen as crucial for Athens' future in the currency zone, is too close to call.   Continued...