Ricardo Salgado, the former head of ailing Portuguese bank, Banco Espirito Santo, who was questioned at a Lisbon court (photo: dpa)

How bail-in, bailout, and no economic rescue for countries will work in future

Recession may be over in most Western economies but the recovery is still fragile and slow. Sustaining current public debt levels in many European countries is precarious. But central bankers are sending out a confusing and mixed message which is doing nothing to calm the nerves of anxious investors.

<i>Banking crises in Bulgaria, Austria and Portugal have demonstrated that the banking industry is fragile, monitoring by central bankers does not work and that local defaults are real possibilities. The sustainability of public indebtedness hangs by a thread in several countries. The well-known bailout strategy pursued by many central bankers over the past few years may no longer b...

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Professor Enrico Colombatto
Despite repeated calls for rigour, therefore, central bankers are likely to engage in renewed bailouts, possibly accompanied by some creative accounting to make balance sheets appear more reassuring
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