Buffett warns loss of confidence in EU risks run on banks

Warren Buffett has warned European leaders are not doing enough to reassure markets they will do what it takes to solve the debt crisis, risking a run on the region’s banks.

Speaking to CNBC, the chairman of Berkshire Hathaway said the markets have lost confidence in politicians to take all necessary steps to fix the sovereign debt crisis plaguing Europe.

“Europe has found a fundamental flaw which is that they cannot print money. When you have a loss of confidence, that begins a run on sovereign debt and banks.

“It is very tough to stop a run – it takes widespread belief that the authorities have the capability to stop it. We believed Bernanke, Paulson, and the President of the United States when they said that in September 2008, even though the issue was somewhat in doubt.

“Getting 17 people to agree to reforms next year is not necessarily a great answer. The markets had the belief the European authorities would do whatever it takes, but it is now not clear who will do what, and what they can do,” Buffett said.

The Sage of Omaha sold all his eurozone debt a year ago, and is not prepared to move back in, although he continues to monitor the situation.

“We have not done it [moved back in] but it is something I look at every day. Time works against you in this situation, and people have become more worried as spreads have widened between France and Germany.”

Buffett said European banks desperately need to raise more capital, whether from the private sector or from an injection of government cash. He said US investors in particular have been deserting Europe’s financial sector in their droves.

“European banks are losing US funding – money market funds that have had large investments in the banks are pulling their money out. The banks need more capital, and the sooner they get it, the better.”

Buffett suggested banks could sell their stock at 80% or 90% of their current price to shore up capital.

“That was forced on US banks, which I did not like, as a stockholder. But whether they have that kind of muscle in Europe I do not know.

“Whether I would be a buyer of European banks or not, I would have to understand them better than I do now.

"We do not own any banks in the eurozone, but I look. Whenever any stock goes down, I look. But I do not like any of them enough to write a cheque.”