Europe needs to double the size of its bailout fund to ¤1 trillion ($1.3 trillion) if it is to shore up its banking system and stop the spread of its spiralling debt crisis, according to a paper published Thursday by the economic organisation that represents developed countries.
The paper, written by Adrian Blundell-Wignall, who is the special adviser to the secretary-general of the Organisation for Economic Co-operation and Development, laid out a list of steps Europe has to take "if a fracturing of the euro is to be avoided."
It includes making sure banks have enough money to weather the storm and forcing them to reduce their holdings of risky assets; making the banking system more secure by separating retail banking the practice of lending to customers from investment banking a riskier business that involves making bets on investments; forcing Greece's private bondholders to take at least a 50 percent loss on the debt; and increasing the size of the bailout fund, which will have ¤500 billion when it comes into effect later this year.
The list is not new many analysts have suggested similar remedies but it comes from a respected source and added to the pressure on European governments to act. European countries are already trying to shore up their banking system, and though they have long been reluctant to expand their bailout fund, that looks to be changing.