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INTERVIEW-Euro zone may miss bank supervisor start date: Kranjec

Source: Thomson Reuters Foundation - Thu, 17 Jan 2013 05:55 AM
Author: Reuters
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(Repeats, without changes, story first published on Wednesday)

* Slovenia's Kranjec: political crisis raises bailout risk

* Doubts start date for new euro banking supervisor

* Says negative ECB deposit rate "only hypothetical option"

By Marja Novak

LJUBLJANA, Jan 16 (Reuters) - It could take longer than currently planned to enforce a mechanism to provide a single supervisor of euro banks, a European Central Bank policymaker told Reuters on Wednesday.

Slovenia's Marko Kranjec also said that any worsening of his country's political crisis could force it to seek a bailout.

Slovenia has been struggling to help its banks, most of them state-owned, to deal with bad loans that have reached 19 percent of the country's gross domestic product, raising investor concerns that it might have to join other euro zone countries in seeking international aid.

Asked in an interview if the political crisis could force Slovenia to seek a bailout, Kranjec said: "The political crisis is very problematic because its worsening would slow down the stabilisation and consolidation measures.

"If the measures slow down or even change their direction I fear a moment may come when we'll discover that we cannot take on new debt or that taking it would be too expensive," said Kranjec, who is Slovenia's central bank governor and sits on the European Central Bank's governing council.

He questioned whether the ECB would be ready to meet its latest target date to enforce a mechanism to provide a single supervisor of euro banks - a move intended to draw a line under the euro zone crisis but which has already been delayed a year.

The bursting of a global credit bubble has piled pressure on banks and overstretched government finances in many euro zone countries.

"I personally believe that the institution for the single banking supervision mechanism will most likely not be fully operational in 2014 as planned although it will formally be established by then," Kranjec said.

ECB DEPOSIT RATE

He also questioned the idea of taking the ECB's deposit rate negative. The ECB normally pays banks that deposit money with it but cut the rate to zero in July.

Asked whether a negative deposit rate was possible, Kranjec said: "At this moment there is no point in debating this, as this is only a hypothetical option."

He echoed comments by ECB President Mario Draghi last week that financial markets are showing more confidence in the euro zone economy.

"But at the same time there is no significant growth in the real sector of the economy, at the moment export is the only element increasing activity in the euro zone while consumer spending and investment are stagnating and we really do not know how long this will continue," he added.

Slovenia's government is struggling to overhaul the former Yugoslav republic's banks, labour market and pension system.

Three junior members of Slovenia's coalition government have called on Prime Minister Janez Jansa to quit over an anti-corruption report issued last week that raised questions over the source of part of his income.

Jansa has denied any wrongdoing, but a walkout by any of the three parties would strip his coalition of its majority in parliament, just as the country is trying to reassure investors.

Kranjec warned that the level of bad loans was still rising and Slovenia's banking system could end 2013 with an overall loss for the fourth year in a row. He put the 2012 loss at 300-400 million euros (${esc.dollar}400-${esc.dollar}534 million) compared with 539 million euros in 2011. Bad loans are put at 6.7 billion euros.

Kranjec, whose 6-year term expires on July 16, said he would not seek to renew it. Slovenian President Borut Pahor has begun the search for a replacement. (${esc.dollar}1 = 0.7492 euros) (Reporting by Marja Novak; Editing by Ruth Pitchford)

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