Brussels, 07/10/2008 (Agence Europe) - The 16 eurozone finance ministers adopted their declaration during last weekend's mini-summit in Paris. At the end of the Eurogroup meeting on Monday 6 October, Jean-Claude Juncker stated that “everything will be done to prevent the banks systemically going bankrupt” (Ed: having an influence on the whole of the financial system) and that states will act as guarantors for them. At the end of the afternoon, a press release from the French Presidency of the EU was already affirming the 27 EU heads of state common intention to pull out all the stops to ensure financial stability and therefore follow the line of the small committee on Saturday 4 October. According to this press release, each EU state will “take all measures necessary to ensure the stability of the financial system, either by the injection of liquidity from central banks, targeted measures on certain banks or through strengthened deposit protection measures”. This overt determination aims to ensure financiers (European and international stock exchanges were still experiencing sharp falls on Monday but appeared to be making gains on Tuesday) and savers (who might be tempted to make huge withdrawals of their deposits).
Before EU27 confirmation at Tuesday 7 October's Ecofin, eurozone ministers all subsequently made a commitment to finding a way of “rescuing the banks and insurance industry” and reached an agreement on certain principles for guiding them during such operations. Elementary principles underline that there should not be any delays in rescue operations (the earlier the better) and exclusively aim to allocate subsidies to bank shareholders (Mr Juncker said that support for shareholders is “not the last of our worries but it is certainly not the first”) and should be subject to a time limit. These public interventions should include possible changes in the management of banks affected, as well as respect for the taxpayers' interests (who should recover their full dues once the situation improves). Ministers also explained that none of the measures should distort competition. Juncker stressed that, “given the means are national, this involves an approach that will necessarily be national, but this national approach must take place with a framework of solidarity”.
Unilateral decisions by several member states to guarantee savers' deposits were particularly contested (this could weaken neighbouring countries) and highlights the need for cooperation. Mr Almunia was concerned by the “extremely negative consequences of unilateral decisions” and confirmed that Commission proposals on deposit guarantees aimed to reduce the deadlines for using these resources (repayment deadlines can be several months after bankruptcy) and to revise the minimum guarantee threshold. Interventions and announcements over the last few days have already created quite a lot of difficulties in some member states. Mr Almunia said that it was imperative to reduce these risks. A discussion on proposals in this sense is expected to take place on Tuesday at Ecofin.
More generally, improvement in the coordination between all leaders (not only the supervisors) is necessary to act as quickly as possible in similar situations. Joaquin Almunia said that it will be important to “remember that once the crisis is over, there are things needed for building Economic and Monetary Union (EMU) in order to tackle the risks we are currently experiencing. We need improvements in how EMU works”.
Jean-Claude Trichet affirmed that the European Central Bank (ECB) is “prepared to bring the single market all the liquidity it needs and for as long as it needs”. He also called on “all stakeholders to behave responsibly, with coolness and confidence” because a lot of them, after having underestimated the risks for so long, are probably overestimating them today.
The Stability and Growth Pact as it stands will be applied in full
The president of Eurogroup was keen to point out that it was mistaken to interpret Saturday's declaration as a weakening in the Stability and Growth Pact (SGP). Mr Juncker asserted that “obviously the SGP has to be respected in full” and that “it will be applied in full” along the lines on which it was devised. He explained that it was in this sense that the agreement in the 16 eurozone member states will apply. These rules include provisions needed to tackle the current exceptional situation. The flexibility element is therefore “not a new element” and since its 2005 revision, a more “political” reading of the SGP has been planned. Juncker insisted that “the SGP will be applied in a way that maintains the spirit and the letter, given that it already contains elements that facilitate a response to exceptional circumstances”. Mr Almunia echoed this sentiment and also explained “the margins of manoeuvre within the SGP for exceptional circumstances have been clearly established and the pact can only be applied in its 2005 revised form to tackle difficult situations, in a rational fashion”.
In the current situation, will the Berlin agreement of April 2007 (which includes a return to budgetary balance by 2010 or 2012) still make sense? Mr Juncker prefers to wait for the next Commission assessment of member state budgetary figures for 2008-2009 before giving an opinion. The commissioner will discuss the matter with member states affected before he gives a response, explained Mr Juncker. There will be an opportunity to do this with several of them next month when the Eurogroup is due to examine the autumn forecasts that the Commission will unveil the same day. (A.B./transl.rh)