JOSÉ MANUEL Barroso, president of the European Commission, said yesterday that he would soon present his own plan for Europe-wide bank recapitalisations, the clearest sign yet that the region’s leaders could come up with a strategy to shore up its financial sector as soon as a summit in two weeks.
Although the commission does not have the power to impose capital injections by national capitals, Mr Barroso’s remarks echoed those by Angela Merkel, German chancellor, who this week said her government was prepared to shore up German banks and urged a co-ordinated European effort.
Mr Barroso did not say whether he believed the effort should be done by national capitals or through the euro zone’s €440 billion bail-out fund, the European financial stability facility, but senior commission officials are known to support using national funds before the EFSF is employed.
France, whose banks have been under the most stress in recent months, has insisted any Europe-wide effort be run through the EFSF, but there were mounting signs that Paris was becoming isolated on the issue.
The leaders of Germany and Finland said yesterday they believed countries with sufficient resources should mount their own recapitalisation efforts before turning to the EFSF.
Jyrki Katainen, the Finnish prime minister, said in an interview that the euro zone should repeat the route taken in 2008, when individual governments vowed to shore up their own banking systems individually.
“The EFSF is not the first solution for this,” Mr Katainen said. “It must be lender of last resort. I don’t know of any reason why the EFSF should be used before governments.”
At a press conference in Berlin, Ms Merkel said any country that had enough resources to shore up its banks should act unilaterally. Dutch officials also said they believed national governments should act first if banks were unable to raise funds on the capital markets.
“Only if the member state is not capable, under strict conditions a member state could appeal to the EFSF,” said a Dutch diplomat.
A senior EU official said the German-led group of northern creditor countries was growing increasingly resistant because they believed France was trying to use their EFSF guarantees to bail out French banks. “They do not want German money to recapitalise French banks,” said the EU official.
Although German banks are still heavily exposed to peripheral euro zone debt, their holdings are less onerous than the three big French banks, which have huge portfolios of Greek, Spanish and Italian bonds.
There were signs France could get support from the European Central Bank, however. ECB officials have long pushed for the EFSF to be used vigorously, and at his final press conference as ECB president, Jean-Claude Trichet appeared to push for the EFSF to be used for a wide-ranging recapitalisation effort.
“Where necessary, [banks] should take full advantage of government support measures, which should be made totally operational, including the possibility in future for the European financial stability facility,” Mr Trichet said.
The EFSF still faces two hurdles before being able to intervene to help banks. Although the Netherlands was set to become the 15th euro zone country to approve the new powers last night, both Malta and Slovakia are facing increasing domestic difficulties in getting the new authorities passed.
All 17 members of the single currency must approve the measures for them to become effective. – (Copyright The Financial Times Limited 2011)
