Frankfurt: Eurozone governments have recovered less than half of the financial aid provided to banks since the global financial crisis, the European Central Bank said, pointing out that the outstanding guarantees pose an additional risk.
Governments have offered a wide range of bank support from guarantees to purchasing assets and providing equity to prevent a credit crunch since the financial crisis commenced in 2008.
The 40 per cent recovery rate so far is low by international comparison and risks remain as outstanding guarantees are worth 2.7 per cent of the Eurozone’s GDP, the ECB said in an economic bulletin on Wednesday.
“The recovery rates to date are particularly low in Ireland, Cyprus and Portugal, while they are relatively high in the Netherlands,” it said in a paper that forms part of its larger economic update, due out on Thursday.
“The recovery rates ... are improving, but are still relatively low by historical standards.” The central bank added that nearly a fifth of the total debt increase in the bloc from 65 per cent of GDP in 2008 to 92 per cent at the end of 2014 was related to the bank aid.
Government guarantees
The biggest debt impact from the measures, worth more than 22 per cent of GDP, was recorded in Ireland and Greece while France, Italy and Lithuania had an impact of less than 1 per cent.
Although government guarantees have been falling sharply since 2012, governments have raised the deposit insurance guarantees and state backing might imply higher fiscal costs in the long run as they create adverse incentives for financial institutions, the ECB added.
“One important way to reduce the potential fiscal costs of financial assistance measures is to ensure an appropriate contribution by private shareholders and bondholders,” it added.
