By Eamon Quinn
Ireland and the rest of the eurozone will tap “an influx” of lenders forced to leave Britain because of Brexit, but many other challenges loom for the single currency, Christine Lagarde, the head of the IMF has said.
Speaking at a Central Bank conference on the euro in Dublin, the IMF managing director said regulators will have to prepare for increased supervisory duties to deal with the relocating banks, and eurozone countries will also need to mesh their regulatory regimes ever closer.
“In the near-term, it is critical to ensure that regulatory and supervisory capacities are prepared for the influx of financial firms that will move to continental Europe — and Ireland — as a result of Brexit,” Ms Lagarde said.
“Over the medium-term, there will need to be greater harmonisation of national insolvency regimes and securities regulations.”
However, the rise in populist movements reflected in the Brexit vote in Britain and the Italian elections requires the eurozone to secure its future by bolstering its defences for the next downturn, including integrating banking markets and by sharing fiscal burdens and providing for rainy-day funds.
“Simply put, the euro area should not repeat the mistakes of the past.
“Greater risk-sharing combined with larger national buffers would allow countries to avoid having to raise taxes and cut spending when the next downturn comes. The IMF recently introduced our own proposal for a central fiscal capacity, or as we described it, a rainy-day fund,” she said.