IMF head warns again about Europe bank capitalisation

September 05, 2011 | 16:14

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The head of the International Monetary Fund Christine Lagarde insisted that European banks needed extra capital, in a magazine interview on Monday.

"We believe that overall it is necessary to recapitalise European banks so that they are strong enough to withstand the risks linked to the debt crisis and weak growth," Lagarde told the weekly magazine Der Spiegel.

Recapitalisation was needed "to avert contagion" of the problems, she said.

German banking shares fell heavily in initial trading on Monday.

Shares in Deutsche Bank were showing a fall of 5.34 per cent to 24.63 euros and Commerzbank shares fell by 4.37 per cent to 1.84 euros on renewed concern about the eurozone debt crisis owing to new strains over the Greek programme to reform public finances.

Deutsche Bank was also affected by a report in the Financial Times newspaper that it faced legal problems in Britain.

Lagarde was repeating a call she made a few days ago for urgent strengthening of the balance sheets of European banks. Her remarks provoked strong criticism from some personalities in Europe who replied that the banking system has adequate funds.

Lagarde also said in the interview that Germany, which has a strong export surplus, should stimulate internal demand because this would be good for the German economy and for the economies of neighbouring countries.

Lagarde, when French Finance Minister before becoming head of the IMF, had criticised Germany for being over dependent on exports for growth and for having insufficient domestic consumption.

AFP

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