ECB, EU officials warn euro’s survival at risk

Friday, 1 June 2012 02:36 - - {{hitsCtrl.values.hits}}

BRUSSELS, May 31 (Reuters) - The European Central Bank stepped up pressure on Thursday for a joint fund to guarantee bank deposits in 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 the single currency area could disintegrate without stronger crisis-fighting measures 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 including Austrian and French bonds.

Irish voters seemed set in a referendum to approve a European budget discipline treaty vital to continue receiving EU financial 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.

ECB President Mario Draghi urged Europe’s leaders to clarify their vision for the single currency quickly or risk disaster, warning the European Parliament that the central bank could not fill the policy vacuum.

“We will avoid bank runs from solvent banks. Depositors’ money will be protected if we build this European guaranteed deposit fund. This will assure that depositors will be protected,” Draghi said, calling for an EU-wide banking supervision and resolution system. EU paymaster Germany, reluctant to risk more of its own taxpayers’ money in support of euro zone partners, has so far rejected any such joint deposit guarantee. “The financial crisis has heightened risk aversion in a dramatic way,” Draghi said.

“I urge all governments to keep this in mind, because it is better to err by too much in the very beginning rather than by too little,” he said, citing the repeated failure of national regulators to correctly assess the needs of failed Franco-Belgian bank Dexia and Spain’s Bankia.

He said the ECB would keep liquidity lines alive for solvent banks and disclosed that four Greek banks that were excluded from ECB lending operations had now been readmitted following recapitalisation by the Greek authorities last week.