Europe's top financial watchdog warned Tuesday that the Euro zone's sovereign debt crisis has become systemic and threatens global economic stability unless decisive action is taken urgently.
European Central Bank President Jean-Claude Trichet issued the dramatic warning as chairman of the European Systemic Risk Board, created to avoid a repeat of the 2008 financial crisis, amid growing fears that Greece will default on its massive debt.
The crisis is systemic and must be tackled decisively, Trichet told a European Parliament committee in his final appearance before retiring at the end of the month.
The high interconnectedness in the EU financial system has led to a rapidly rising risk of significant contagion. It threatens financial stability in the EU as a whole and adversely impacts the real economy in Europe and beyond.
European banking regulators meanwhile asked banks across the continent to provide updated data on their capital position and sovereign debt exposures to help reassess their need for recapitalization.
Germany and France, the leading powers in the 17-nation Euro zone, have promised to propose a comprehensive strategy to fight the debt crisis at an EU summit delayed until Oct. 23.
But they must first resolve differences over how to recapitalize banks, whether to force a Greek debt restructuring or stick to a voluntary deal with private bondholders and how to use the Euro zone's rescue fund.