Crisis in the eurozone is ‘worse than Lehman Brothers collapse’ says top European financial regulator
By Hugo Duncan
PUBLISHED: 01:02, 10 July 2012 | UPDATED: 01:49, 10 July 2012
Peter Praet, chief economist at the European Central Bank has issued a stark warning to European finance ministers ahead of today’s meeting in Brussels
The crisis in the eurozone is more dangerous than the collapse of Lehman Brothers during the banking crash nearly four years ago, a senior European regulator said last night.
Peter Praet, chief economist at the European Central Bank, said the situation in the single currency bloc was worse than the events which toppled the US investment bank in September 2008 and plunged the global economy into recession.
The stark warning from such a senior figure at the Frankfurt-based institution will cause alarm at today’s meeting of European finance
Mario Draghi, President of the European Central Bank, has called for bold action and told EU leaders there is ‘no time to waste’ in solving the current eurozone crisis ministers in Brussels.
It came as borrowing costs in Spain and Italy soared in a dramatic escalation of the debt crisis stalking the eurozone.
Spain’s crucial ten-year bond yield – the amount its government pays to borrow – lurched back into the danger zone above 7 per cent. In Italy, the interest rate rose above 6 per cent.
Fears are mounting that Spain will need a full-blown state bailout on top of the £80billion rescue package agreed for its broken banks. It is thought that Italy could then be the next domino to fall – wreaking havoc in Europe and throughout the world.
‘The eurozone crisis is now much more profound and fundamental than at the time of Lehman,’ Mr Praet said.
Greece, Ireland and Portugal have already been bailed out and Cyprus has asked for emergency aid to save it from collapse. European Central Bank president Mario Draghi warned national leaders that they had ‘no time to waste’ in getting to grips with the crisis.
He said last month’s European Union summit – the 19th since the crisis began with the meltdown in Greece – was only the ‘first step’ towards saving the region.
At the meeting at the end of June, European leaders outlined plans for a banking union policed centrally by the ECB. They also agreed to allow countries to get loans from eurozone bailout funds in an attempt to reduce borrowing costs.
But since the summit, Finland and the Netherlands have voiced opposition to such a move, fuelling fears of a break-up of the eurozone. Germany is also reluctant to prop up banks and countries with taxpayer money without strict conditions.
Analysts said that it will take months to thrash out the details of the package – leaving countries such as Spain in limbo.
Andrew Kenningham, senior global economist at Capital Economics in London, said: ‘Hopes that the EU was finally getting to grips with it have faded . . . things could get much worse before they get better.’
Mr Draghi said bold action was needed by European leaders.
‘They know very much that there is no time to waste,’ he said. ‘I am a little more confident than most of the comments that have been expressed after the summit.
‘The euro is here to stay and the euro area will take the necessary steps to ensure that.’