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27th Feb 2024

Barroso outlines 'comprehensive' roadmap to tackle eurozone crisis

European Commission President Jose Manuel Barroso on Wednesday (12 October) outlined a five-point “roadmap” aimed at bringing an end to the eurozone crisis that has rattled world markets and threatened to drag the global economy into a second recession.

The EU executive chief called for an urgent strengthening of the bloc’s banking sector, a massive recapitalisation that the International Monetary Fund has estimated will cost as much as €200 billion.

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  • Barroso urged immediate action to draw a line under the crisis (Photo: europarl.europa.eu)

Backing the German position in the debate between Berlin and Paris over how such recapitalisation should take place, the EU leader said that banks should first look to shoring up their balance sheets by attempting to access private sources of capital, with national governments providing support if this cannot be found.

Only after these two avenues are exhausted, should banks look to funding via a loan from the European Financial Stability Facility (EFSF), he said in an address to the European Parliament.

He added that once bailed out, these financial institutions should be prevented by national banking supervisors from issuing dividends and bonuses.

Although Barroso himself did not place a figure on the levels of capital banks will be required to maintain, it is likely that the proposal will involve a speeding up of the implementation of rules already agreed at the international level.

The amounts required - for a temporary period until the crisis has passed - would also be based on assessments by national supervisory authorities.

Barroso said that the “piecemeal” approach to “specific responses to aspects of crisis” had not worked and that “now is the time for a full, comprehensive, credible response” that “must be implemented immediately”.

“Reactive and piecemeal responses to different aspects of the crisis are no longer sufficient. We now need to get ahead of the curve,” he said.

The roadmap goes beyond bank bail-outs and calls for an acceleration of the creation of the eurozone’s permanent rescue fund, the European Stability Mechanism. He said the ESM should be up and running by the middle of 2012, a year ahead of its scheduled launch. The permanent fund involves forced writedowns on sovereign debt, unlike the current set-up.

He also called for “decisive action on Greece”, including a disbursal of the country’s sixth tranche of bail-out cash, the provision of liquidity to financial institutions by the European Central Bank and urged Slovakia to rapidly adopt changes to the current rescue fund, the European Financial Stability Facility, agreed by EU leaders on the 21 July.

He said that much more “enhanced co-operation” amongst EU states - a decision-making method in the EU that allows a majority of states to move forward with proposals they back even if other states remain opposed - in the areas of economic governance.

This was necessary, he said “so that those who want to move forward are not held back.”

“The speed of the EU should not be the speed of its slowest member.”

Barroso said that existing “growth-enhancing” policies that have already been agreed must now be rapidly implemented, covering areas such as services, energy and free trade agreements. He also wants to see swift adoption of a series of commission legislative initiatives currently on the table but have yet to be approved, including pending proposals on taxation, the single market and the issuance of so-called European project bonds.

He called for deeper economic integration and backed Dutch proposals for an expansion of the powers of the European commissioner for economic and monetary affairs, a plan that would give the commissioner the power to assume control over all economic decision-making in a heavily indebted eurozone member state.

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