Osborne urges EU to sort out banking system

George Osborne, Britain's chancellor, on Wednesday urged Europe to "put its own house in order" in 2011, calling on eurozone countries to decisively underpin the euro and finally sort out the bloc's fragile banking system.
Mr Osborne, writing in the Financial Times, says Europe has not been bold enough in its response to its currency and banking problems, leaving a shadow hanging over recovery.
The chancellor calls on Europe to restore confidence by tackling deficits and adopting supply-side measures to boost growth, but he says eurozone members must also agree a "comprehensive package" early this year to restore confidence in the euro.
"The sense of crisis may have eased, but wide spreads and high market interest rates still stalk several European economies," he writes, ahead of an economic conference in Paris.
Mr Osborne shares the concerns of Gordon Brown, former prime minister, that European countries have failed to follow the UK's lead by ensuring their banks were properly capitalised following the crash.
He argues that the International Monetary Fund or other external bodies should be brought in to bring credibility to a new round of stress tests for European banks, after the last such exercise was shown to be badly flawed.
He says Europe cannot repeat the mistake and that new stress tests -- scheduled for next month -- should be "much tougher", covering liquidity as well as capital.
The last round of stress tests, in July, in which 84 of the 91 banks scrutinised -- including Bank of Ireland and Allied Irish Bank -- received a passing grade have been widely discredited, amid lingering concerns about banks' exposure to other struggling European economies.
"It is revealing that the tests conducted last July identified a capital shortfall of just €3.5bn yet less than six months later Irish banks alone required 10 times that amount," Mr Osborne writes.
"That is why the UK has already gone much further with tougher stress tests and now has banks that are among the best capitalised in the world."
Mr Osborne's comments may be seen in some European capitals as a return to the days when Mr Brown, as chancellor, would issue lectures on how eurozone countries should run their economic affairs.
But the chancellor's aides insist Mr Osborne recognises that Britain is only starting its tough fiscal squeeze and that obstacles to growth are as prevalent in the UK as in some other parts of Europe.
"We don't want to sound like we're lecturing," said one ally. But Mr Osborne's success in restoring some confidence in the British economy has at least emboldened him to offer a lead on the international stage.
In his FT article, Mr Osborne also says he is determined that Britain should remain a global financial centre, warning Brussels against hobbling it with "badly thought through regulation".

He renews his call for an international consensus on the implementation of the global "Basel III" package of bank capital reforms.