Belgium, (Brussels Morning Newspaper) The European Central Bank (ECB) and the European Banking Authority (EBA) warned against European Commission’s proposed changes.
The eurozone central bank and the EU banking regulator pointed out that the EC proposed to relax banking rules put in place to prevent a repeat of the 2007-2008 financial crisis, according to Reuters reporting on Friday.
The two bodies reminded that EU Parliament and Council are discussing EC’s proposal to loosen banking rules by delaying implementation of Basel Framework to save banks in the EU some capital.
They stressed the importance of not deviating from Basel III accord, reminding that the international standard was designed to improve safety. “At stake here are the reputation, the competitiveness and, ultimately, the funding costs of the EU banking sector,” the bodies warned in a joint blog post.
“If all deviations under discussion make it into the final legislative package, we cannot rule out the Basel Committee labelling the EU ‘non-compliant’,” the two bodies concluded.
Looming winter recession
As EU bodies discuss plans to cushion the blow of the crisis and rein in rising inflation, contraction of economic activity in the eurozone continues to pick up pace.
Eurozone inflation reached 10.7% in October, exceeding ECB’s target more than fivefold, with the ECB announcing more rate hikes aimed at curbing inflation.
S&P Global credit rating agency’s Purchasing Managers’ Index for the eurozone continued to drop in October and stood at 47.3, the lowest level in nearly two years, pointing towards economic decline.
Joseph Hayes, senior economist for economic indices at S&P Global Market Intelligence, warned “after a weak third quarter of PMI and official GDP data, the latest survey results for the start of the fourth quarter suggest the eurozone economy is now headed for a winter recession.”
He pointed out that rising inflation is hurting demand as well as business confidence and added “fears that the energy crisis could intensify over the winter period are also feeding uncertainty and weighing on decision-making.”
S&P’s business index for the eurozone dropped to 45 in October, the lowest point since late 2020, while indicators show “inflationary pressures remained extremely elevated across the eurozone.”
Hayes concluded that “a substantial worsening of economic conditions in the coming months may give policymakers a difficult decision to make with regards to the path of monetary tightening, for fear of being too aggressive and prolonging the downturn.”