European plan must solve Greek debt and bank solvency issues
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Jeremy Hobson: European leaders met over the weekend and say they’ll come up with a comprehensive plan to deal with the European debt crisis by the end of the month. The plan allegedly — or supposedly — aims to get ahead of the crisis by pumping capital into European banks. Let’s get some analysis now.
Julia Coronado is off today, but we are joined instead by Adolfo Laurenti, deputy chief economist with Mesirow Financial. He’s with us live from Chicago. Good morning.
Adolfo Laurenti: Good morning.
Hobson: So Adolfo, from what you know about this plan that Merkel and Sarkozy have come up with — or are going to come up with — does it sound like it’s going to be a solution?
Laurenti: Well, at least it looks like a promising solution. It tackles two different but problems — the one of the Greek debt and of bank solvency. We know that Greek has too much debt to pay it back so needed to restructure, possibly to an orderly manage manner.
But at the very same time, we know the European banks will suffer losses because of a default of Greece, and so the government needed to resign themselves to the idea of a bailout plan by injecting some capital into the banks — very much like in the U.S. three years ago with TARP.
Hobson: Right, but we’ve know about the problems in Greece, we’ve known about the problems at the banks. The government in Europe, the governments have sort of come up with varying solutions over the last couple years. Why do you think it will work this time?
Laurenti: I think it’s different this time because the two problems are finally related together. If you go back six months ago, or one year ago, Europeans are very adamant in denying the need for the recapitalization of the banks or the injection of capital, and they were also very adamant in denying the possibility of a Greek default. This is a turn of 180 degrees and now both proposals are on the table.
Hobson: Adolfo Laurenti, deputy chief economist with Mesirow Financial, thanks so much.
Laurenti: Thank you.
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