ECB expert issues warning

The European Central Bank is worried about another economic crisis next year if the economy does not recover at a quick pace. The central bank's financial stability expert said it monitors 25 strategically important institutions, and the banks have the capital to cover losses in 2009, but next year is problematic depending on the strength of the recovery.

A rapid "V-shaped recovery" would alleviate much of the worry, he said, but a slow rebound, or a U-shaped recovery could cause rising problems and new defaults on the continent in 2010. For a look at different types of economic recoveries, see my post L, W, U, V - the alphabet soup of recoveries.

The ECB is currently expects GDP to decline in the eurozone for the remainder of the year before slowly rising sometime next year, so I have to make the assumption the ECB is worried about another wave of problems sometime in the next 9-12 months.

The IMF weighed in recently, imploring policymakers to clean up banks in Europe. It appears central bankers are listening and taking the issues seriously. See post IMF sees signs of improvement but banks must be cleansed.

Unfortunately, central bankers in Europe felt they were immune from the subprime crisis in the US and actually raised interest rates in July 2008 amid rising inflation and were caught flat-footed by the Lehman debacle.

I provide a little bit different look at Examiner.com.