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Europe's banks need a fundamental restructuring to sort out the mess from the 2008 financial crisis and enable them to fund the growth that the eurozone and British economies so desperately need, a former senior aide to European Commission president José Manuel Barroso has claimed.
Philippe Legrain, who in February ended a three-year stint as Mr Barroso’s independent economic adviser, believes that a banking shake-up is essential as the first part of a three-pronged strategy to get Europe back on track.
“Europe needs to restructure its banking system,” he said in an interview with The Telegraph. “The Americans have been much more vigorous in that than we have.
“There has been a belief that it’s best to try to preserve existing banks and exercise regulatory forbearance rather than force them to face up to their losses, sorting viable banks from unviable ones, recapitalising viable ones and closing down the unviable – the usual standard policy for dealing with a banking crisis.
“The rule book has been broken here in Europe and the result is that we have a zombie banking system that keeps alive zombie companies that should go bust, while failing to extend credit to promising new companies that could deliver future growth.
“That’s one of the big reasons why productivity in Britain has been so poor. The justification has been to stabilise the system but you end up freezing the economy.
“You might say that this is all old hat and that the UK is growing again but that growth is coming almost entirely from increased consumption with real wages that are still falling and from a housing bubble that returns to the old model of boom and bust. I don’t think it’s sustainable.”
Londoner Mr Legrain worked as a journalist at The Economist and for the World Economic Forum before acting as a special adviser to the director-general of the World Trade Organisation. He is now an independent commentator and consultant.
“Despite the obvious differences between Britain and the eurozone, they have actually pursued very similar strategies, prioritising getting public finances in order and failing to deal with the banking crisis,” he said.
Mr Legrain’s ideas for change are outlined in his book European Spring: Why Our Economies and Politics are in a Mess and How to Put Them Right.
The second key strand involves writing down excessive national and household debt, while the third is “combining measures to boost public and private investment with meaningful reform”.
We have not dealt with bank crisis, says ex-EU adviser - Telegraph
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