Brussels, 26/11/2009 (Agence Europe) - It is too early to start withdrawing the raft of measures to support the financial industry but coordination at EU level will be necessary. This is the message that will be sent out by the ECOFIN Council in a conclusions document that does not opt for either of the exit strategies under consideration, I other words, phasing out the bank bailouts and other state aid systems when the market returns to normal and state aid loses its attraction, or a gradual hardening of the guarantee systems still available (from June 2010 onwards, for example, as suggested by the European Commission).
The document to be adopted on Wednesday 2 December 2009 does not go into much detail. It says that the exit strategy should start with state guarantee schemes. Scrapping such schemes is reported to be a way of encouraging 'good' banks to withdraw from the mechanisms and encourage other banks to tackle the weaknesses on their balance sheets, explains the Council. The conclusions document does not mention the other two types of aid provided by the Member States, but logically the next measures to be withdrawn would be the bank recapitalisation, followed by bank rescue measures (bailouts). The recapitalisation measures usually include incentives for withdrawal from the measures in that the aid has to be 'paid back' over time or remunerated according to market conditions and often includes a restructuring plan (dealt with on a case-by-case basis by the Commission). The measures to save assets are less often used and tend to be on-offs for specific institutions. Gradual withdrawal from such measures happens automatically by the assets surviving or possibly being sold off on the market by the government. This final option requires properly liquid markets and experience shows that this can take a long time to return, explains a report from the Economic and Financial Committee (ECF) drawn up ahead of the previous ECOFIN Council (see EUROPE 10016).
The draft conclusions document for the 2 December ECOFIN Council simply sets out guidelines on a general exit strategy. The exit strategy will not take place as the same rate everywhere but should encourage a return to a competitive market, exchange of information in advance by Member States on their exit strategy plans, transparency towards the general public and the financial industry and stress tests of the financial system. Given the differences between the economies of the various Member States, the exit strategy timing will differ from one country to another. The withdrawal of state support measures will need to take account of a range of issues, like macroeconomic stability (in terms of growth, insolvency, unemployment, monetary conditions, etc) along with the situation facing the financial sector in terms of the credit crunch (the ability of companies and households to find loans and mortgages in normal conditions) and an assessment of risks to financial stability. In general, the exit strategy should try to minimise the cost to the taxpayer, underlines the conclusions document.
Further discussions will take place at the Economic and Financial Committee, which will be reporting back to the Council in February 2010. (A.B. trans fl)