Europe needs between 100 billion and 200 billion euros to recapitalize its banks to win back investor confidence and should put in place a comprehensive plan across the continent, the International Monetary Fund’ European Department Director Antonio Borges said on Wednesday.
“We are talking about figures of between 100 and 200 billion euros, which in our view is very, very small compared to the size of the European capital markets and compared to the resources of the new, enhanced EFSF,” Borges told Reuters during a visit to Brussels, referring to Europe’ bailout fund.
“There has been a lot of talk about French banks, but … the problem is very widespread,” he said.
“No banking sector in the world can sustain a generalized loss of confidence and we need to restore that confidence all over Europe.”
Borges also said the IMF would “definitely participate” in a second bailout package for Greece if the Washington-based lender was happy about the country’ determination to solve its debt problems.
“If there is a second program for Greece, which is the expectation, I think the IMF will definitely participate on the condition that we remain convinced that Greece is on track and the right policies can be put in place, that debt can become sustainable,” he said.
Borges said he could not see the European Central Bank playing a central role in increasing the capacity of the euro zone’ European Financial Stability Facility (EFSF) bailout fund.
“When people talk perhaps loosely about leveraging the EFSF, they have in mind using the EFSF in a very targeted manner in order to bring other investors back to the market for sovereign debt, an intervention that would restore confidence,” he said.
“I think everybody is aware that even this much larger EFSF has limited resources and has to be used efficiently.” Borges also said investors had valid concerns about a possible recession.
But he denied that IMF-mandated austerity programs and government spending cuts were to blame for the slowing economies, rather the loss of confidence stemming from vulnerable weak banks and the region’ huge debts.
Recession worries are “more related to problems in the financial sector and the possibility of a real credit crunch, rather than what is happening on what is happening on the fiscal front,” Borges said.