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21 October 2011 | PR 11/130
Professor puts forward Ten Point Plan to save the Euro
As part of a recent study, Professor David Llewellyn from Loughborough University, who is the Vice Chairman of the Banking Stakeholder Group at the European Banking Authority (EBA), has developed a Ten Point Plan for Europe’s leaders to save the Euro.
Professor Llewellyn argues that European governments must adopt a holistic approach to address three intertwined crises, which should be tackled together rather than piecemeal.
Those crises are:
- That Greece cannot service its own debt and its new austerity measures virtually guarantee it will need to default or fundamentally re-structure its debt.
- Many European Banks are not sufficiently capitalised to cope should various sovereign debts default. With an estimated shortfall of around €250 billion, only a bank re-capitalisation programme could enable a concerted, holistic strategy to deal with the various dimensions of the crisis.
- Fundamental fault-lines in the Euro and monetary union project and the membership structure of the Euro-zone mean that, as a transnational monetary union without an effective crisis mechanism in place, bailing out other member states will eventually be resisted by tax-payers in donor countries. Yet greater fiscal union is resisted by some richer countries fearful of subsidising weaker countries (as evidenced by Germany), and by weaker countries fearful of electoral unpopularity.
The break-up of the Euro area would have massive negative economic impacts for all countries involved, including those which are not part of the Euro area but which have strong trade or financial links with it, including the UK.
Professor Llewellyn summarises his holistic ten-point plan as follows:
- An early, internationally coordinated and realistic re-capitalisation of banks.
- Public sector injections of capital in banks in some cases but with clear conditions attached.
- Realistic sovereign debt re-scheduling and re-structuring where necessary.
- A substantial increase in rescue funds (perhaps to around €2 trillion from the current level of €440 billion).
- Bailout conditions must avoid the austerity trap. They should be robust but realistic.
- Bailout conditions need a medium-term strategy, combining short term support with an adjustable pace of repayments over the long term depending on economic conditions.
- Address the fiscal elements of the Euro’s fault-lines either through fiscal union, or credible, monitored and sanctioned tighter fiscal governance.
- Separate support arrangements for solvent but illiquid countries to avoid them expecting the same treatment as insolvent countries.
- Develop effective cross-border bank Resolution arrangements to avoid bank failures having systematic and tax-payer costs.
- Define a realistic role for the European Central Bank.
Professor Llewellyn argues that governments (or their electorates) are not prepared to face up to the implications of what is needed if the Euro project and monetary union are to be sustained in anything like its present form and structure.
He says: “Addressing the three inter-twined layers of the problem separately simply won’t work. If the Euro project is to be sustainable, a holistic approach is needed with a concerted, combined reform package. This needs to be the agenda for both the October European summits in Brussels and the G20 meeting in November.”
−ENDS−
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Notes for editors:
- Professor Llewellyn is available for interview.
- Based at Loughborough University’s School of Business and Economics, Professor Llewellyn is a Professor of Banking and Finance and has published widely in the area of financial regulation, acted as a consultant to regulatory agencies in several countries and was a Public Interest Director of the Personal Investment Authority – a predecessor of the Financial Services Authority.
Professor Llewellyn is also the Vice Chairman of the Board of the Banking Stakeholder Group at the European Banking Authority (EBA). The EBA has an EU-wide remit for ensuring a high and consistent standard of bank regulation and supervision. Its Banking Stakeholder Group was set up to monitor and advise the EBA in all aspects of its work and assess the impact of its regulatory standards guidelines and recommendations. The Group is comprised of representatives of key stakeholders from across the EU, including banks, trade unions, think tanks and the academic community. Professor Llewellyn is one of the six Group members representing “Top Ranking Academics” from across Europe. - Loughborough is one of the country’s leading universities, with an international reputation for research that matters, excellence in teaching, strong links with industry, and unrivalled achievement in sport and its underpinning academic disciplines.
It was awarded the coveted Sunday Times University of the Year 2008-09 title, and is consistently ranked in the top twenty of UK universities in national newspaper league tables. In the 2011 National Student Survey, Loughborough was voted one of the top universities in the UK, and has topped the Times Higher Education league for the UK’s Best Student Experience every year since the poll's inception in 2006. In recognition of its contribution to the sector, the University has been awarded six Queen's Anniversary Prizes.
Loughborough is also the UK’s premier university for sport. It has perhaps the best integrated sports development environment in the world and is home to some of the country’s leading coaches, sports scientists and support staff. It also has the country’s largest concentration of world-class training facilities across a wide range of sports.
It is a member of the 1994 Group of 19 leading research-intensive universities. The Group was established in 1994 to promote excellence in university research and teaching. Each member undertakes diverse and high-quality research, while ensuring excellent levels of teaching and student experience.