This past week’s Economist highlights Europe’s continuing economic crisis and how deferred loss recognition by banks may translate into “pressure in the streets”. This article also notes that loans “to non-financial firms contracted in May by 4.1% in Italy, 5.0% in Portugal and 9.7% in Spain.”
In the same week, the ECB’s Benoît Cœuré noted that “Reviving credit growth is one of the most pressing challenges for the euro area today” and that “… governments have to ensure that banks are properly capitalised and that their balance sheets are cleaned up.”
Similarly, Harald Benink and Harry Huizinga from Tilburg University argue that bank losses should be acknowledged and imposed upon subordinated and common debt holders.
The apparent success of bank recapitalisation in the US is one one of the supporting arguments.
Is forced re-capitalisation the way forward for Europe’s beleaguered economy?
Have US policy makers effectively addressed their structural banking sector issues and demonstrated the most appropriate policy response to the global financial crisis?