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Europe on tough road to reform: Barclays

Updated: 2012-06-19 10:35
By Chen Jia (China Daily)

Bank CEO calls opening up of China capital market 'extremely helpful'

Reform of Europe's financial system and economy will follow a thorny path, even though the Greek election pulled the country back from the brink of exiting the euro, according to Bob Diamond, chief executive officer of UK banking giant Barclays Plc.

And he warned that banks in the eurozone need to focus on increasing liquidity and lowering leverage to avoid the potential risk of systemic collapse.

"There could be difficult challenges in the next a few years for the Greek economy, no matter whether it is part of the EU or not," said Diamond. "But I believe that challenges will be more successfully managed if it stays in."

Steps such as improving the quantity and quality of tax collection should be taken immediately to create a better business environment and boost economic growth in the indebted European countries, Diamond said.

The pro-bailout party, New Democracy, led the anti-bailout Syriza in the Greek general election on Sunday.

However, the outcome for Greece still awaits a meeting of European leaders on June 28-29 in Brussels, where a bailout plan will be officially unveiled.

"I think the market is much more prepared now on the Greek exit issue than it was six months ago," he said.

Contagion from the deepening sovereign debt crisis has threatened the whole banking system on the continent, forcing the financial institutions to restructure assets and raise money properly on their balance sheets, analysts said.

"A number of banks across the EU were slow to react to the crisis. It is fair to say that there is more to change across countries in Europe in the financial service industry," he said.

He said that in some countries, such as Spain, restructuring in the banking sector should come before increasing liquidity. "Spain is a bigger economy and a real important part of Europe. I think its reaction is much more significant," Diamond added.

As the weaker EU economy again imperils the global economy, China has been hit by sharply decreased cross-border trade.

The slowest economic growth rate this year in China may be seen in June, said Diamond, who forecast that full-year GDP growth may remain around 8 percent, as "the world's confidence about the country is still high".

The People's Bank of China cut one-year benchmark interest rates by 25 basis points on June 8, to halt a faster-than-expected economic slowdown and boost the manufacturing industry.

Diamond said that China still has room for policy fine-tuning and continued cuts in the reserve requirement ratio to release liquidity, but "that should be managed carefully to avoid unintended consequences".

As China has now begun to encourage the use of yuan outside the Chinese mainland, with a view to it eventually becoming a fully convertible global currency, Barclays is expanding its business of offshore renminbi-denominated "dim sum bonds".

"The further renminbi internationalization and the continued opening-up of China's capital market will be ... extremely helpful for the global economy," Diamond said.

This year, the bank ran the transaction for China Development Bank's 2.5 billion yuan ($393 million) issue of bonds in the offshore market with a maturity of 15 years.