Luxembourg - European finance ministers examined ways to
strengthen their banking sectors and break the link between troubled banks and
indebted countries on Friday, with concerns about Spain’s stricken banking
system top of their minds.
IMF managing director Christine Lagarde has urged the
eurozone to channel aid directly to struggling banks rather than via
governments, but Germany and others are opposed to such direct lending, which
is not possible under current rules.
The discussion is part of a broader debate about how the
European Union can move towards a so-called banking union, including a Pan-EU deposit
guarantee scheme and a fund to resolve bad banks, to try to get on top of the
two-and-a-half year sovereign debt crisis.
Lagarde said on Thursday that allowing the eurozone’s
rescue scheme - the European Stability Mechanism (ESM) - to aid stricken lenders
directly rather than using a programme of aid to a government would stop bank
problems from exacerbating the difficulties of countries.
Arriving at Friday’s meeting Spain’s Economy Minister Luis de Guindos said such a possibility may be open to Spain, which is set to
receive up to €100bn of aid from the eurozone for its troubled banks.
“I think (direct bank recapitalisation) is a possibility,”
he told reporters. “It is one of the fundamental elements to break the link
between bank risk and sovereign risk.”
“This possibility is absolutely open to Spain if there is
progress in the next few months (on the issue). The process of recapitalisation
is not instantaneous,” he said.
Throughout the crisis, countries in the eurozone have been
left to resolve problems at their banks themselves.
For those for whom the burden was too great, such as
Ireland, the government received aid from the IMF and the EU to do it.
But after years in crisis, the problems in banks show no
sign of abating and Europe’s leaders are under pressure to form a united front
to shield struggling lenders rather than leave countries to cope with such
At a summit in Brussels next week, EU leaders will examine
establishing a banking union that envisages a single supervisor for big banks,
a fund to wind down cross-border lenders in trouble and the deposit guarantee
scheme to protect savers.
Central to this is the idea is that stronger countries in
the eurozone such as Germany ultimately stand behind the lenders of countries
too weak to manage alone, although Berlin does not want any such step in the
short term because it is opposed to bearing any liability for other countries.
“We need to break the poisonous link between sovereigns and
banks,” said one EU diplomat close to discussions. “It’s about solidarity. It
can’t happen overnight. It is difficult stuff."
A banking union is also contentious because it will likely
shift power from national regulators to a higher authority, such as the
European Central Bank (ECB).
France and Germany want the ECB to take charge of major
systemic banks, rather than leaving oversight with the European Banking Authority.
One of the biggest divisions in the debate about such a
union is whether it will apply only to countries in the eurozone, or to all 27
member states in the European Union.
Britain has said it will not join such a scheme, which it
believes should be limited to the single currency area.
The European Commission, the EU's executive, wants the union
to apply to all countries, because of concerns that scaling it back would
undermine the bloc's borderless single market.
Michel Barnier, the EU commissioner in charge of financial
regulation, will attend Friday’s meeting to appeal again for all countries to
In Luxembourg, ministers will also discuss warnings issued
to countries by the European Commission to countries on improving the
management of their economies to reach spending goals laid down in EU law.
Spain may receive more time to reach the goal of cutting its
budget deficit to 3% of economic output, although one senior diplomat said this
would only be discussed next week at an EU leaders' summit in Brussels.
Germany will also push for the introduction of a tax on
financial transactions, a move demanded by the country’s opposition socialists
in order to secure their backing in parliament to sign off on the ESM.