If smaller countries like M'sia can restructure banking why can't Europe do it?

THE longer the eurozone leaders quibble over possible solutions to the debt woes of some of their less fortunate members, the shakier is the outlook of the banking system.

At this moment, some may still be in a denial mode while others are caught in the game of pros and cons.

Suggestions and comments on possible solutions abound but concrete details from the authorities have yet to surface.

JP Morgan Securities expected eurozone governments to inject up to 150 billion euros, an initiative that would be similar to the US TARP programme, Reuters reported.

One idea is for the potential 440 billion euros eurozone rescue fund, EFSF, to act as an insurer, guaranteeing the first portion of losses on Italian or Spanish debt.

However, nothing concrete had been put forward to eurozone finance ministers, Reuters said.

Another proposal is to turn the EFSF into a bank, which would allow it to access to European Central Bank (ECB) funds, meaning that it would effectively have unlimited capacity.

“But the ECB has raised concerns about such a step, which would politicise ECB operations and put it on the line for massive liabilities,” said Reuters.

It is a good sign that at least suggestions are turning up but these have to be carried out in a constructive manner by people with the firepower.

There has to be someone driving the decisions. Just raising concerns will bring the world nowhere.

There must already be plans to recapitalise banks, if necessary. One of the best alternatives would be for an enlarged lifeline to banks, should their exposure to the distressed eurozone countries fall into problems possibly arising from default.

The severity of the impact on the banking system, in case of default, bank runs or some other catastrophic event, is not to be under-estimated.

The worst thing is when the systemic effect and contagion ripple across the borders and markets elsewhere. The panic and subsequent poor sentiment can snowball into a myriad of other problems.

We have seen, in the 2008 global financial crisis, how banks and markets elsewhere were impacted by the fall of Lehman Brothers.

In the aftermath, tremendous efforts and debates were held, primarily in the United States, to decide on various massive steps to revive the economy and the banking system.

There were a lot of concerns and grouses on the ground level but leaders that showed a fair amount of decisiveness, pushed through with the agenda that showed high priority on reviving the banking sector.

As such, top priority should be placed in Europe on the stability of their banking system. By now, leaders of the eurozone, especially the more powerful ones, should have a plan on how to stem the problems faced by their banks.

They should not wait until banks start going under; the worst-case scenario being the domino effect.

Anything is possible in a situation of non-action. If smaller countries like Malaysia could restructure and recapitalise its banking system, as in the aftermath of the 1997 Asian financial crisis, why can't a powerful bloc like the eurozone perform even better feats?