EU mulls 'coordinated' help for banks, chiefs head to talks

6th October 2011, Comments 0 comments

The European Commission president said Thursday the EU wanted "coordinated action" to recapitalise banks, as markets rose ahead of talks by global finance chiefs on the eurozone debt crisis.

Referring to the "real mess" in the eurozone, Jose Manuel Barroso said there was a will to accept that "we manage this collectively", joining calls for banks to be recapitalised to help stem the debt crisis.

"We are now proposing to the member states to have a coordinated action to recapitalise banks and get rid of toxic assets they may have," Barroso said in an interview with Euronews TV.

Stock markets rose as all eyes turned to Berlin where an interest rate decision was expected by the European Central Bank and German Chancellor Angela Merkel was to host talks with top officials.

European shares rallied on renewed hopes of a resolution to the debt crisis, although gains were capped by caution ahead of crucial interest rate decisions for the eurozone.

Investors also reacted to overnight news of the death of Apple founder Steve Jobs, although analysts said his passing was not rattling markets ahead of the resumption of trade on Wall Street.

Asia's stock markets also surged, boosted by another strong performance on Wall Street and buoyed by better-than-expected economic data from Washington easing concerns the United States was slipping into recession.

Merkel was to host talks on threats to the financial global system later Thursday, to include Christine Lagarde, head of the International Monetary Fund as well as the heads of the World Bank, OECD and G20 representatives.

Also attending will be European Central Bank chief Jean-Claude Trichet, who chairs the last meeting of his eight-year term with central bank chiefs from the 17 eurozone countries in Berlin.

Analysts are divided over the possibility of a rate cut to stave off a looming recession, after the Bank of England opted to hold interest rate at a record low 0.50 percent.

Merkel, in Brussels for a European Commission meeting Wednesday, said helping the banks was "justified, if we have a joint approach", giving nervous financial markets an immediate boost after days of heavy losses on fears the banking sector needed help urgently.

The statement came after France and Belgium were forced to leap to the rescue of cross-border bank Dexia, the first European bank to be dragged down by the eurozone debt crisis -- and which also had to be rescued in 2008.

The debt crisis that began in Greece, snaring Ireland and Portugal on the way and now threatening Italy and Spain, is putting at risk the whole euro project as banks exposed to sovereign debt find it impossible to raise funding.

The resulting "credit crunch" has sparked warnings of a possible replay of 2008 when US investment bank Lehman Brothers collapsed, almost taking the global financial system down with it, but for massive government support.

Official data in Frankfurt showed eurozone banks continued to deposit large amounts of overnight funds at the European Central Bank, a signal that banks are wary of lending to each other.

Merkel said that it "is important for the markets that we achieve results ... time is pressing and we have to act quickly".

Germany, she said, was ready to show the way, putting fresh capital into its banks if necessary, while adding that there was no "magic wand" at Europe's disposal to resolve its problems.

IMF Europe director Antonio Borges said that "somewhere between 100-200 billion (euros) will be more than enough" to back up the banks, adding it was "not that much money ... by no means beyond reach".

Asked to comment on how EU authorities had allowed the sovereign debt crisis to get out of hand, Barroso said: "In fact the European Commission has always warned about the high levels of debt in our member states."

But "probably not so vigorously as we should," he admitted.

"Unfortunately at that time we did not have all the instruments we are going to have now," he added, referring to a new package of laws adopted this week to drastically tighten fiscal and budgetary discipline.

Greek Prime Minister George Papandreou will meet his ministers to discuss the crisis Thursday ahead of the arrival of German Economy Minister and Vice Chancellor Philipp Roesler the same evening.

Civil servants staged a 24-hour walkout Wednesday in protest at a government plan to sideline 30,000 staff to reduce the deficit in return for the next tranche of debt rescue funding.

The Netherlands was also due Thursday to vote on expanding the European Financial Stability Facility, the EU's bailout fund.


© 2011 AFP

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