View more on these topics

Default would force ECB recapitalisation, warns F&C’s Scott

Europe’s central bank could be forced to recapitalise in the event of a default by Greece, Ted Scott, the director of global strategy at F&C Investments, says.

In a new note, Scott points out that the European Central Bank attempted to help beleaguered countries on the eurozone periphery by purchasing bonds on the open market.

It also waived its requirement for investment grade sovereign debt as collateral and acted as an emergency funding provider for banks.

But Scott (pictured) argues that this has led to the ECB “sacrificing its own reputation, credibility and principles of sound money” while trying to contain the debt crisis – which continues to spread despite the bank’s efforts.

“The reality is that, with the periphery countries it is trying to provide assistance to, the ECB has become so embroiled in the crisis that its own assets and capital have been severely weakened,” the strategist says.

Illustrating this, Scott notes that the bank has bought around £39 billion of Greek bonds since country’s debt crisis started, while it has loaned €90.4 billion to the Greek banking sector. This has “greatly weakened its own balance sheet”, he adds.

In the event of a default by Greece, the eurozone’s 17 national central banks may need to recapitalise the ECB, Scott warns.


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm