The European Systemic Risk Board has met for the first time. The EU’s so-called ‘super-watchdog’ is designed to monitor Europe’s financial sector and highlight emerging problems for relevant authorities to act on.
Jean-Claude Trichet, head of the European Central Bank, and of the board, said it will have to gain “strong moral authority.”
Deputy chairman of the board – Bank of England Governor Mervyn King – responded to criticism that it will have no formal enforcement powers: “If the risks are felt to be sufficiently serious and we collectively decide to issue a public warning that would be very clear and apparent to you and we would explain that openly to you.”
King said the first meeting was “to put in place the building blocks” for the Systemic Risk Board, such things as the working processes and the frequency and style of warnings.
It is likely that warnings would be issued about public debt as well as banks. That would put Greece firmly in its sights and the board met as it was reported that officials in Germany’s finance ministry are working on contingency plans to handle the fallout in case Greece defaults or needs to restructure its debt.
One source close to the finance ministry told the Reuters news agency that German civil servants were analysing how a Greek restructuring might work, as well as what this would mean for German banks and the stability of the euro zone. No conclusions have yet been reached.
“They have started to consider the unthinkable,” said the source. “They are looking at a contingency plan preparing for Greek restructuring.
“It is not something they want, but something they recognise,” he said. “They would be unprepared for the impact on their own bank balance sheets. They have started to see what the Greek constitution says.”
German banks have the second-highest exposure to Greek debt – almost 37 billion euros – and the highest to Ireland of more than 138 billion euros.