FINANCIAL TIMES: A drastic contraction of European bank balance sheets over the next 18 months could jeopardise financial stability and economic growth in Europe and beyond, according to forecasts from the International Monetary Fund. …
While acknowledging that balance sheets needed to shrink after the financial excess seen in the run-up to the crisis, the IMF warned that the risk of a “synchronised and large-scale deleveraging” could spark financial instability and hit economic growth.
“The highly uncertain Euroepan policy backdrop is driving banks to keep shrinking, even if we avoided a disorderly and abrupt crunch,” warns Huw Van Steenis, banking analyst at Morgan Stanley… (more)
EDITOR: As we have long maintained and Nobel Award economist Paul Krugman recently stated in a column, the problem lies in trying to mainta the Euro as a currency across Europe’s diverse economies. Monetary and fiscal efforts are only a temporary fix. When will the Europeans face up to the realities? Likely only have the markets have inflicted massave punishment.
