Public funds should not be used to back bad loans

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Public funds should not be used to back bad loans

MEP Matt Carthy.

Sinn Féin MEP Matt Carthy has expressed concern at comments by the European Central Bank (ECB) and the European Banking Authority (EBA) that public funds should be used to solve the problem of non-performing loans.

Carthy, a member of the Economic and Monetary Affairs committee, said: “In the past week we’ve seen leading representatives of both the ECB and the EBA make public statements floating the idea of using public funds to reduce the level of bad loans in the EU.

“We’ve been told that the days of taxpayers bailing out private banks are over. But proposals such as this show the view that the public should prop up the private banking sector is still in vogue in Brussels and Frankfurt.

“At the same time, we see the EU’s new Banking Union rules failing miserably in Italy in the first major test of the legislation supposedly designed to end publicly-funded bailouts.”

Carthy continued: “There is no easy solution to the high level of non-performing loans in countries across Europe. Now totalling €1.2 trillion, the NPL problem needs to be taken seriously. But the preferred options identified by the ECB and the EBA – of establishing publicly funded bad banks, and of developing a securitisation market for non-performing loans – are not the answer.

“NAMA is hardly a glowing example to follow, and the promotion of securitisation is the promotion of financial complexity and risk.

“I welcome Mario Draghi’s comments in the European Parliament this week that he does not consider government guarantees of bad loans through bad banks to be a ‘panacea’ to the problem – but his colleagues in the ECB and EBA are saying the opposite.

“When we look at potential solutions to this problem we need to remember that austerity policies enforced by the Troika in the so-called memorandum countries, and across the eurozone through the fiscal compact, are a major contributing factor to the high level of NPLs.

“The Irish state has the fifth-highest level of NPLs in the EU, about four times higher than the EU average. Many Irish NPLs are found in the household and SME sectors, a trend worsened by austerity measures and failed policies in housing.

“The medium-term solution to the problem is an end to austerity policies across Europe and substantial infrastructure investment programmes that invest new funds into the real economy.

“We also need to remember that it is not the role of the European institutions nor of taxpayers in the EU to ensure the profitability of the banking sector.”