Trichet sees systemic threat, wants Europe banks funded

Tue Oct 11, 2011 6:47am EDT
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By Sakari Suoninen

FRANKFURT (Reuters) - The euro zone sovereign debt crisis has become systemic and risks to the economy are increasing rapidly with Europe's banks in the danger zone, European Systemic Risk Board (ESRB) Chairman Jean-Claude Trichet said on Tuesday.

Trichet, who heads the European Central Bank as well as the continent's super-watchdog on financial stability, said the euro zone's EFSF bailout fund should be made as flexible as possible, but without involving the ECB in leveraging it.

"Over the past three weeks, the situation has continued to be very demanding. The crisis is systemic and must be tackled decisively," Trichet told the European Parliament's Committee on Economic and Monetary Affairs.

"The high interconnectedness in the EU financial system has led to a rapidly rising risk of significant contagion. It threatens financial stability in the EU as a whole and adversely impacts the real economy in Europe and beyond."

Trichet called for governments and European authorities to act together to solve the crisis, adding that delay would be disastrous.

"It is a matter of urgency that all authorities act in unison, with total commitment to safeguarding financial stability," he said.

The ESRB is designed to take a bird's eye view of Europe's financial system and flag up any emerging problems for relevant authorities to act on.

It has no formal teeth, although if it is not satisfied with authorities' reactions, it has the option of going public with its fears.   Continued...