Banks must recapitalise themselves: Merkel

7th October 2011, Comments 0 comments

German Chancellor Angela Merkel insisted Friday that under-pressure banks must first turn to investors for funds before appealing for national or European cash.

Speaking after a meeting with Dutch Prime Minister Mark Rutte, Merkel said: "We are being confronted with observations that banks are insufficiently capitalised ... but we must follow the advice of experts."

"If there are proposals that we need to recapitalise the banks, then we can implement these, but in a hierarchy: first the banks must try and get capital for themselves," said Merkel.

"If this is unsuccessful, then national instruments should intervene, as was the case in 2008 and 2009.

"Only if a country cannot do this with its own means, then the EFSF facility can be used as an option, but on the condition that the country undertakes its own structural reforms," added Merkel, referring to the EU's bailout fund.

She said the European Banking Authority, which is assessing the health of the continent's banks, should take the lead on deciding whether recapitalisations were required.

An eagerly anticipated meeting of EU leaders in Brussels on October 17 and 18 would also give a steer on future policy, she added, although the technical details would be left to finance ministers.

"We all know that the banks must function for the real economy to get credit," Merkel said.

Merkel's comments came amid signs that France and Germany were divided on the role of the European Financial Stability Facility (EFSF) in recapitalising banks, ahead of a meeting of the two leaders on Sunday.

Paris wants banks to be able to tap the fund immediately, whereas Berlin prefers the states act.

The chancellor also said that the issue of Greece and its debt mountain was not expected to play a large role at the forthcoming EU meeting, as a report by international inspectors on its progress would not yet be available.

© 2011 AFP

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