Newspaper article The Evening Standard (London, England)

Moody's: Bailout Plan for Euro Banks Is Not Enough

Newspaper article The Evening Standard (London, England)

Moody's: Bailout Plan for Euro Banks Is Not Enough

Article excerpt

Byline: Russell Lynch

ATTEMPTS to prop up tottering European banks are doomed to fail unless political leaders tackle the region's sovereign debt crisis, ratings agency Moody's warned today.

The agency's stark comments immediately poured cold water on German Chancellor Angela Merkel and French President Nickolas Sarkozy's Berlin pledge to unveil comprehensive plans to recapitalise European banks by November.

It warned: "Since any recapitalisation initiative will not address the underlying driver of Europe's bank crisis, mounting sovereign debt concerns, it is unlikely to achieve more than a temporary respite from banks' sovereign debt woes and we expect investor sentiment to remain fragile."

The gloomy comments came on the day Franco-Belgian lender Dexia, a victim of fearful funding markets over its exposure to Greece, was dramatically nationalised and broken up.

The Belgian government is paying [euro]4 billion ([pounds sterling]3.4 billion) to take on the ailing retail bank and putting up nearly two thirds of [euro]90 billion in state guarantees for the business. A consortium featuring the Qatari royal family has agreed to buy its Luxembourg arm.

The rising tensions in funding markets were underlined today as figures revealed banks depositing [euro]255.6 billion overnight with the European Central Bank on Friday, the highest this year.

Moody's said any relief from debt woes afflicting banks would be "brief " and added: "The source of stability, government balance sheets, has become the source of uncertainty."

Dexia's collapse comes just months after the European Banking Authority's widely derided stress tests gave the bank a clean bill of health. Belgium, labouring under debts worth almost 100% of its GDP, is already on notice from Moody's over a potential sovereign downgrade due to the impact of the rescue on its public finances. …

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