ECB backs ‘bad banks’ to clean up eurozone mess

The ECB’s vice president yesterday called for the creation of government-backed bad banks to help buy some of the €1tn in unpaid loans that have weighed on eurozone banks since the financial crisis.

With lenders in Italy and other weaker economies struggling to find buyers for their bad credit, Vitor Constancio called for an EU blueprint for creating asset-management companies compliant with EU rules against bailouts.

Less than a week ago, Germany shot down a proposal by the European Banking Authority to create an EU-wide bad bank on the grounds that bad loans are concentrated in just a few countries, such as Italy, Cyprus and Portugal.