'We Still Do Not Have a Euro Crisis': Economist
The existence of a crisis for the euro has almost become accepted fact of life in the past few months, with some of the countries in the euro zone struggling with high levels of sovereign debt and the future of the single currency itself questioned.
However, one German economist believes that we "still do not have a euro crisis."
"It's not a problem of the monetary system, it's a problem of the financial institutions, especially some of the big banks," Helmut Siekmann, Professor, Chair of Money, Currency and Central Bank Law, IMFS at Goethe University, told CNBC Thursday.
"It was at the beginning and it still is now."
His comments came as markets across Europe opened in the red, continuing the unsettled atmosphere this week as Sunday's European Union summit is anxiously awaited.
European Union estimates suggest that 80 billion euro ($110 billion) is needed to recapitalize its banks, much less than the 200 billion suggested by the International Monetary Fund (IMF) according to a report in the Financial Times.
French President Nicolas Sarkozy, who became a father for the fourth time Wednesday, held an emergency meeting with German Chancellor Angela Merkel Wednesday to try and hammer out details of the deal ahead of the summit.
Bank recapitalization and the European Financial Stability Facility (EFSF) are likely to be discussed.
Siekmann said that there was an opportunity missed to recapitalize the banks at the start of the current financial crisis in 2008.
"We could have recapitalized then with the special recapitalization funds that we have in Germany on a voluntary basis," he said.
"Now, developments have exacerbated the problem and it might be more difficult."
The main disagreement between France and Germany, the region's two biggest economies, is over how to increase the firepower of the EFSF, Sarkozy told French MPs on Wednesday.
The size of the fund to bail out struggling countries such as Greece is being raised to 440 billion euro ($603 billion), although some reports have suggested it may have to be hiked up yet again to deal with the possibility that larger economies such as Italy and Spain may need to be bailed out.
"We have the problem of the sovereign debt of some countries who have saved their banks but didn't have a sustainable fiscal policy," Siekmann said.
"That's nothing new, but now it has become a problem."
"This combination of the sovereign debt crisis and too little equity in major banks could be a real threat to the financial stability of the system," he warned.
"We need a complex solution right now. We have to make the difference between short term crisis solution and medium term preventative actions to make the system more resilient."