12th Nov 2019

France and Germany at odds over EU 'Paulson Plan'

  • US treasury secretary Henry Paulson (r) visiting the European Central Bank in July (Photo: ECB)

France believes EU-level measures may have to be cobbled together to aid banks in smaller member states, while denying rumours of a €300 billion package. But Germany has indicated it would not support any European "big-bang" deal.

French finance minister Christine Lagarde has told a German paper that a "safety net" would be needed to support smaller countries in Europe "threatened with banking failures."

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"What happens if a smaller EU state is hit by a looming bank collapse? Maybe this country does not have the means to save the bank," she told the Handelsblatt in an interview published on Thursday (2 October). "Therefore the question of a European safety net solution comes up."

The safety package may be presented by French President Nicholas Sarkozy at a 4 October meeting between himself, the prime ministers of Germany, Italy and the UK, as well as Eurogroup chief Jean-Claude Juncker and European Central Bank president Jean-Claude Trichet.

Rumours of the sums that should be attached to such a package have swirled around Europe, but Ms Lagarde has denied a widely reported figure of €300 billion.

Speaking at a Paris event on Wednesday evening, the French finance minister denied that France was planning the major cash injection.

"There is no such thing. There is nothing of the sort," she told reporters, according to the Reuters news agency.

Elsewhere, reports have appeared suggesting the Netherlands is the source of the €300 billion proposal. The country quickly denied this was the case.

But any suggestion of a European version of US treasury secretary Henry Paulson's $700 billion bail-out plan for Wall Street is being stiffly resisted by Berlin.

"The idea of applying one solution, one big bang ... is not practicable and would create new, enormous problems,'' German finance ministry spokesperson Torsten Albig told reporters yesterday in Berlin.

"Germany does not think much of such a plan," he said, according to AFP.

In an interview with German daily Bild, Chancellor Angela Merkel said she opposed writing "blank cheques" for banks.

Level-playing field

France's Ms Lagarde did however say that there needed to be a "level playing field" for accounting rules across Europe when speaking to the BBC on Thursday.

And she repeated France's call for stricter regulation of the financial sector.

"Clearly there needs to be better discipline, more measure and more reason," the minister said. "Sanctions need to be taken so that implementation of the rules is achieved."

The words echo her comments in the Handelsblatt interview, in which she said she thinks "it's more needed than ever" to regulate hedge funds, but admitted there is a lot of resistance to such a move.

In the same interview, she said she also wants an early warning mechanism, so that when a bank gets in trouble, the ECB is warned right away and a "crisis unit" is set up immediately.

Poland less at risk

In separate news, the head of the Polish national bank, Sawomir Skrzypek, stressed that as bad as things are in the western financial sector, his country was in a much safer position.

"Poland will be among those states which will feel the effects of the global market events much more gently," he told Gazeta Wyborcza.

"Our banking regulations are in many ways more strict than in other countries," he said.

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