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Role of the private sector in euro debt crisis

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Role of the private sector in euro debt crisis

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As European Commissioner for Internal Market, Michel Barnier, is at the forefront of the fight against the economic and financial crisis in the eurozone. He believes that the crisis that has hit Europe came from U.S. banks, that is why Mr Barnier believes that oversight and accountability of the banking system are essential to protect European savers. He has been speaking to euronews correspondent Sergio Cantone.

S. Cantone.

Mr. Commissioner, should European citizens be seriously worried about their savings?

M. Barnier.

Frankly I don’t think so. Week after week we have put in place regulations. We require transparency, we will hold to account all the financial players in all markets and all the products they use. We’re in the process of drawing up proposed legislation aimed at protecting savers’ deposits and those of investors.

S. Cantone.

Exactly what level of protection can European investors expect?

M. Barnier.

The wording is very clear. We’re proposing to pass legislation guaranteeing European savers up to the level of 100 000 euros.

If I may,I want to go beyond the protection of consumers. What is important is that employment grows. It is the competitiveness of Europe that matters and for this we must draw lessons from the crisis that destroyed economic growth, which destroyed competitiveness. This crisis has cost us 10% of GDP in Europe, because it took that to save the banking system which directly affects the savings of citizens.

S. Cantone.

It should be an important step, making banks more responsible for guaranteeing their capitalization?

M. Barnier.

We will effectively implement the European laws. If parliament and the ministers adopt the recommendations of Basel 3, to increase capital and funds of the European banks, then those banks, all 8230 of them, will be the first to do so in the world and we hope that other continents, including the United States, will follow suit.

S. Cantone.

Have the recent stress tests for banks demonstrated a need for such measures?

M. Barnier.

The stress tests are tests of resistance to events that never actually happened. They’re useful and we’re improving them every year. This year they were more rigorous, transparent and credible.

S. Cantone.

But it did not take into account the CDS, the insurance on defaults?

M. Barnier.

It’s true that there are tests that have only been applied to certain parts of their business, but in terms of risk on sovereign debt it’s easy to calculate who is dependent on who, who is exposed to what.

S. Cantone.

Is there a risk that if a country defaults then that will result in banks falling into default as well?

M. Barnier.

We participated in the rescue of three countries, Greece, Ireland and Portugal. We have put in place emergency government measures, a solidarity fund. We have also put in place measures to ensure it doesn’t happen again.

S. Cantone.

All such debts should disappear but they are held by certain banks and the banks are exposed to speculation, so what is the solution?

M. Barnier.

We have asked, it is also the debate that took place at the European Council, that the private sector participates in the recovery of countries such as Greece, and it maintains its level of exposure. It’s not a question of accepting default so much as offering support.

S. Cantone.

But the European Central Bank is against that?

M. Barnier.

Against what?

S. Cantone.

The participation of the private sector.

M. Barnier.

It’s a discussion that is taking place. It’s a question of participating and maintaining a level of exposure. It’s not to accept any default. The whole plan of support and solidarity has been set up precisely to ensure there is no default by an individual state or a bank.

S. Cantone.

But the ratings agencies are saying that any such agreement with the banks for their participation in the rescue of Greece will be considered as a kind of default of payment.

M. Barnier.

We don’t look at it like that. The discussion is currently taking place. We do everything to avoid default and it is precisely that philosophy and purpose of the support that has been brought to Greece, although I think that it is logical and legitimate that the private sector take part in this collective effort, moreover it’s in their interest.

As far as the ratings agencies are concerned I have to say I’ve found it surprising to see ratings fall over the past few months without any warning to these countries, while those countries are engaged in a very important collective effort.

S. Canton.

The downgrading of sovereign debt of some European countries has been made ​​by ratings agencies that are not even in Europe. Shoudn’t we give more responsibility to the EU? Shouldn’t we have a European ratings agency controlled by the European institutions?

M. Barnier.

You’re right that there are too few ratings agencies. Three major credit ratings agencies in the world is not enough, given the influence these agencies can have in all areas of finance. So the first thing to do is to increase competition. And so, one way or another I hope we will encourage private initiatives to create new credit ratings agencies.

But it’s also important to reduce the influence of these ratings, to reduce the dependence on these ratings. These ratings are used too much in drawing up regulations, all regulations including the banks. What I’m proposing today is that the banks make their own judgements without relying on what these agencies say.