Merkel: Banks should be recapitalised without delay

6th October 2011, Comments 0 comments

Banks should be recapitalised as quickly as possible, if needed, German Chancellor Angela Merkel said Thursday, as concerns grow that the eurozone debt crisis is turning into a credit crunch.

Merkel said there could be no room for hesitation but stressed that governments should only step in if the banks could not do the job themselves.

"I think there would be a very clear need (to recapitalise) because this is money that is safely invested ... I don't think we should hesitate," Merkel said.

There would be "far greater damage" if banks needed to be rescued by governments, she said.

"But the first step is for banks to recapitalise themselves," she stressed.

Later, she said the EU's bailout fund, the EFSF, could step in to provide more cash for the banks but "only under very certain conditions ... and only if the euro as a whole were to be threatened.

"I would like to recall that the EFSF is a facility which serves to provide assistance at a point in time when a country (in trouble) would threaten the stability of the euro and the eurozone as a whole," the chancellor said.

Merkel was speaking at a joint press conference with the heads of the International Monetary Fund, the World Bank and the Organisation for Economic Cooperation and Development after a meeting about the global financial system.

Earlier Thursday, the head of the European Commission, Jose Manuel Barroso said Brussels would propose "coordinated action to recapitalise banks and get rid of toxic assets they may have" to the 27 EU member states.

"Now because of the real mess where we are there is a good will to accept that we manage this collectively," Barroso told Euronews television.

A day before, speaking with Barroso in Brussels, Merkel had said that lending assistance to banks was "justified, if we have a joint approach," handing a much-needed boost to jittery financial markets.

Traders fear the eurozone debt crisis could spread to banks that are holding large amounts of sovereign debt issued by countries under pressure, such as Greece, Italy and Spain.

This has sparked fears of a re-run of 2008 when US giant investment bank Lehman Brothers collapsed, all but taking the global financial system with it.

At a meeting of the European Central Bank in Berlin, president Jean-Claude Trichet earlier urged banks to strengthen their balance sheet as he rolled out additional liquidity measures to help lenders struggling to obtain credit.

© 2011 AFP

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