Fears about European banks overshadowed a summit of EU leaders yesterday with multiple sources briefed on their discussions admitting to a deep sense of nervousness in the meeting.
Afterwards some EU leaders insisted that banking reforms in the wake of the financial crash have strengthened the sector and would protect the euro zone from any contagion effect after high-profile failures in the US and an emergency rescue of Switzerland’s Credit Suisse.
But others left without commenting and in a highly unusual move, European Commission president Ursula von der Leyen and council president Charles Michel, who chairs the leaders’ meetings, cancelled their post-summit press conference.
Privately, senior officials admitted that many leaders were spooked by the news that bank stocks were plunging on markets just as they gathered yesterday morning.
A plunge in shares of Deutsche Bank – at one point they were down as much as 14.9 per cent – after a spike in the cost of insuring its debt against the risk of default undermined efforts to insist that local banks were well-buffered against market turbulence. The 27 leaders were briefed on economic developments, the resilience of the euro zone and the outlook for inflation by Eurogroup president Paschal Donohoe and European Central Bank chief Christine Lagarde.
“Of course I’m aware of market developments that take place. But it’s not appropriate to comment on them, given how conditions can change,” Mr Donohoe said in guarded remarks to journalists after leaving the meeting, when he was asked about Deutsche Bank.
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“We are very confident regarding where our banks stand at this moment, their stability and their strength.”
Even before the slide in bank shares began, leaders had been instructed to leave their phones outside the meeting to guard against leaks, a reflection of nervousness over the potential of the talks to influence financial markets if details slipped out. If they needed to confer with an adviser, they had to call them by pressing a button, officials said.
“Obviously, we discussed the banking crisis,” Greek prime minister Kyriákos Mitsotákis told journalists as he left the meeting.
He said that Europe implemented adequate reforms to ensure “the mistakes of the past would not be repeated” and noted that non-performing loans in Greek banks had been radically reduced in recent years.
“I am absolutely confident about the stability and the robustness of the Greek banks,” Mr Mitsotákis said.
In the meeting, Ms Lagarde reassured the leaders that European banks had been bolstered by requirements to hold more capital reserves, in a series of regulatory reforms implemented in the wake of the last crisis to increase the ability of banks to withstand financial shocks.
German chancellor Olaf Scholz brushed off questions about Deutsche Bank from reporters, saying the bank had been modernised and that decisions to enact “very strict rules” in Europe had paid off.
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“There is no cause for concern,” Mr Scholz said.
Dutch prime minister Mark Rutte said that criticism from the banking and business community against European reforms was now being revealed as unfounded.
“Now you see how important it is that we have those buffers,” he told reporters. “Generally, I think we’re in a good shape.”
Mr Donohoe used the occasion to appeal to the leaders to push ahead with legislation to create a truly cross-border EU banking industry, saying this would increase the continent’s economic resilience.
Part of the proposed reforms, which have been stuck in negotiations since 2015 and were most recently mothballed in 2022 following objections by Germany, include a proposed Europe-wide guarantee on depositor’s savings.
The failure to complete the reforms has come under fresh scrutiny since a series of banks collapsed in the United States starting with Silicon Valley Bank, forcing an expensive emergency intervention by the Federal Reserve.