Brussels, 30/11/2011 (Agence Europe) - On Wednesday 30 November, European finance ministers gave their go-ahead to renewal of national systems that guarantee bonds in the medium term (one or two years) issued by banks of their own country, as was the case during the 2008 financial crisis. Given the insistence of representatives from the largest member states, they rejected two other options that were of a more Community nature - certainly longer to implement but presenting the advantage that they set out a common front on this issue. This approach could nonetheless entail difficulties for countries in poor economic health in so far as the guarantees provided will represent an extra weight on their debt and, at the end of the day, on their ability to refinance on financial markets. Ireland, which had provided an unlimited guarantee to its banking sector in crisis, was finally forced to request financial bailout at the end of 2010.
Speaking on Wednesday 30 November, Poland's Finance Minister Jacek Rostowski said: “We have shown our agreement on the national regimes that should abide by the rules on state aid issued by the European Commission. These rules will be finalised to promote maximum comparability between member states.” The rules, applicable as of January 2012, will be presented on Thursday by Competition Commissioner Joaquin Almunia. They will be reviewed at the end of six months.
The European Commission takes consolation from the fact that the agreement on public guarantees, that it considers to be a minima measure, provides an approach coordinated at European level by the European Banking Authority (EBA) based on criteria to be used to define the duration and the rates applied for national guarantees. The latter should also comply with amended European rules on state aid, to be unveiled by the Commission on Thursday.
Recapitalisation. The dossier on public guarantees is one of the two chapters of the “banking package” developed at the end of October at the European Council. The other chapter concerns the banking recapitalisation programme (see EUROPE N.10483). On Wednesday, the EBA provided updated figures on own fund requirements compared to the €106 billion identified at the end of October. This data could be made public in coming days. According to Rostowski, one of the key conclusions of the Ecofin Council's discussions was: - the amounts fixed must not be assimilated to own equity ratios to be attained. In other terms, “deleveraging is not a way to achieve the level of capital required”, although some types of transfer will be possible, he stressed.
By June 2012, European banks must strengthen themselves by giving up certain assets or raising capital on the markets. In the event of need, they may call on national mechanisms, or even on the strengthened European Financial Stability Facility (EFSF) (see related article). There again, the more fragile countries like Spain and Italy whose banking sector must raise €26 and €15 billion respectively (Ed: EBA figures for the end of October) may find it difficult to keep their banks buoyant.
These discussions come at a time of great tension on the interbanking markets. On Wednesday, the main global central banks (ECB, American FED, Banks of Canada, Japan and Switzerland) pooled forces to breathe fresh life into European banks. They announced that they would extend their currency exchanges until February 2013. In addition to US dollars, the European Central Bank will provide Japanese yen, Swiss francs and Canadian dollars for European credit establishments that are cruelly lacking. The aim of this is to prevent the distrust born of the sovereign debt crisis together with the demands for solidity of the banking sector from completely blocking the way the economy works, when further recession is looming on the horizon.
According to Jacek Rostowski, this concerted action was very well perceived by the ministers. Nonetheless, such action is “insufficient” in itself as the upheavals on the sovereign debt markets are at the heart of the current crisis and this problem must be dealt with “directly” in order to meet the difficulties of the financial sector. Changing the European treaties - which is all very well for the medium and long term - is not enough to face up to short-term emergencies, Rostowski said, alluding to Germany's resolve to change the European treaties in order to establish a culture of economic and budgetary stability with in the EU. (MB/transl.jl)