Sovereign debt in Europe 'could rise if banks seek govt help'

12 December 2011

Sovereign debt prices across Europe could fall further in the near future if banks in the region look to governments for a boost to their capital holdings, an expert believes.

Last week (8 December), it emerged financiers on the continent need to raise an additional €115 billion ($153 billion) before next June if they are to be able to comply with new regulatory demands.

However, figures have shown most companies are a long way off this requirement, with, for instance, banks in Germany needing around €13 billion more in capital to make sure they can resist any further crises.

This has resulted in some lenders considering the possibility of seeking help from their governments, but Karel Lannoo, chief executive officer of the Centre for European Policy Studies, has told Bloomberg this would be the start of a "vicious cycle".

"If the southern governments put money in their banks, their sovereign debt will go up, exacerbating their problems," he warned.

By Tony Aynsley

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