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3rd Jul 2022

Commission to unveil bank bail-out plan

  • Barroso backs the Dutch plan for a 'super-commissioner' (Photo: European Commission)

European Commission President Jose Manuel Barroso on Tuesday said that the EU executive will put forward plans for a fresh round of bank bail-outs across Europe on Wednesday (12 October).

"Tomorrow in the commission I will make some proposals on some of those topics, for instance recapitalisation of European banks. We believe that we need a kind of comprehensive response taking into consideration all the aspects, not only one," he said, speaking to reporters in The Hague.

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EU officials are racing to co-ordinate a substantial bank recapitalisation after weeks of denying that there was any problem with the sector. Declaring the bloc's banks liquid and solvent, leaders said that all but eight had passed stress tests in July.

But a faltering European economy and fears over exposure to peripheral debt has significantly worsened the situation for the bloc's troubled lenders since the tests were organised.

An emergency rescue of Franco-Belgian bank Dexia on Sunday forced the hands of EU officials, with German Chancellor Angela Merkel and French President Nicolas Sarkozy saying the same day that bank re-capitalisation plans were underway.

Barroso last week had said that a "co-ordinated" bank recapitalisation is necessary.

Also on Tuesday, credit rating agency Fitch downgraded six Spanish banks.

Adding to the gloom on Tuesday, the outgoing chief of the European Central Bank, Jean-Claude Trichet, warned that the renewed banking crisis now threatened the world economy.

"The high interconnectedness in the EU financial system has led to a rapidly rising risk of significant contagion. It threatens financial stability in the EU as a whole and adversely impacts the real economy in Europe and beyond," he told MEPs, speaking in his capacity as head of the European Systemic Risk Board.

In the Hague after a meeting with Dutch Prime Minister Mark Rutte, Barroso also said for the first time that the commission backs the Netherlands' proposals for a 'super-commissioner' who would have the power to make a 'ward' of any heavily indebted member state and take over all economic policy-making from an elected government.

He said the role should rest with the current economic and monetary affairs commissioner, Finnish liberal Olli Rehn.

"We need a stronger governance, a stronger discipline," he explained, "and that's why I favour the idea put forward by prime minister Rutte of a stronger role for the commission, including the naming of a commissioner of economic and financial affairs."

Finland has also publicly backed the Dutch plans and it is understood that Germany finds aspects of the proposals favourable.

Europe needs "strengthened discipline, with a stronger governance and a common approach by independent European institutions," Barroso went on in The Hague.

"It has to do with the credibility of the eurozone and the credibility of our common effort."

Merkel, Sarkozy will do ‘whatever necessary’ to bail-out banks

Financial markets hoping for the outline of some grand strategy for dealing with the ever-worsening eurozone crisis are likely to be disappointed by the vague announcement offered up by the French president and German chancellor after emergency talks in Berlin on Sunday.

Belgium rescues troubled bank amid ratings warning

The Belgian state has said it will pay €4 billion to purchase Dexia, a Franco-Belgian-Luxembourg bank with high exposure to Greek debt. The move comes two days after Moody's warned it may downgrade Belgium's rating.

Banks, Europe haggle over scale of bond haircut

The world’s banks have delivered a “significant” new offer on the scale of a haircut on their holdings of Greek sovereign debt, but no details have appeared since their earlier stance described by one EU diplomat as “playing hardball”.

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