`Default Would Be Disastrous Worldwide’: Leipold

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Oct. 14 (Bloomberg) –- Lisbon Council Chief Economist Alessandro Leipold discusses the Eurozone banking system and the impact of possible U.S. default. He speaks with Mark Crumpton on Bloomberg Television's "Bottom Line." (Source: Bloomberg)

Former acting director of the imf's european department.

He joins us from our washington bureau.

Welcome back.

Good to see you again.

Thank you very much.

Bloomberg news has obtained a document prepared by lithuania which holds the rotating presidency.

They could offer guarantees or loans to cover up front costs of a failing bank.

What should bridge financing have to demand each failing bank in the eurozone?

Hopefully it will be good news.

There was an agreement for them to play this role.

That'll take time for the national resolution funds to build up.

The question is what you do in the meantime.

This would be a very good idea.

This is quite different from changing the whole european union.

It has been opposed until now.

It seems to be gaining increasing factions.

What type of support should be put in place to ensure a failure for those sovereign banks is not unleash a contagion.

Is the stumbling box.

It is something to be discussed.

The biggest deal of the ua.

This will put the ministers to the meeting.

The full 28 ministers of the countries.

They are in a position to actually agree on the framework for a supervisory mission.

It's an issue the legislation shortly thereafter.

That is a breakthrough.

We did not think it will come quite that quickly.

The conventional thinking is that the supervisory mechanism was not going to clicking until sometime next year.

What is the european central bank's role in all of this?

Even if they do agree on the framework tomorrow, it will only kick in sometime next year.

They fear the calendar would slip.

The role will obviously be that of the signal supervisor.

Before that they will be carrying out the quality review that is checking the balance sheets from all the major systemic banks in the european union.

, in the eurozone rather.

If there were any capital shortfalls.

The issue there is are they going to do a vigorously enough if there is no backstop?

Are their balance sheets efficient enough to withstand another shot?

It depends on the nature.

They are a lot stronger than they were a few years back.

They can cut this.

What would a failure by the united states government to raise the government and the five dollar trillion market, what would that mean for financial stability in the eurozone?

It would be pretty disastrous worldwide.

It is such a small comfort for europe that we are discussing europe toward the end of your program rather than the beginning.

Because the problems in the u.s., the fiscal drama is actually greater than that.

It is a very big risk.

They never cease to warn about in the last few days.

They cannot resist the temptation.

It is a deal in the netherlands.

It is time that the u.s. also go dutch.

Alexander joining us from

This text has been automatically generated. It may not be 100% accurate.

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