France, Belgium vow to save Dexia like in 2008: Baroin

4th October 2011, Comments 0 comments

French Finance Minister Francois Baroin said on Tuesday that his government, like that of Belgium, "will answer present" if cross-border bank Dexia needs a second bailout "like in 2008."

Baroin was issuing his first pronouncement on the fate of the bank, whose shares crashed by nearly a quarter on Tuesday morning after an emergency boardroom session and unions raised the prospect of a fire-sale.

"The Belgian and French states will answer present like in 2008," when a US mortgage market crash triggered a global credit crunch, Baroin said in Luxembourg, on the sidelines of talks among European Union finance ministers.

The talks were already dragging out after a eurozone decision to delay a verdict on paying out promised bailout monies for the Greek state until November, but soon widened into a deeper discussion on refinancing banks after Dexia's shares tumbled.

Paris and Brussels will step in to guarantee savings in Belgium and to ensure French local authorities can continue to have access to loan financing. Dexia is the leading provider of local government financing in France.

"Whatever happens, we will put in place a quick and effective solution which will guarantee there will be no collapse for this vital activity," Baroin added of the local government requirements.

However, he did not spell out that there would be an eventual injection of state capital. "All we are saying is the states will be present like in 2008," he said.

Baroin said the problems facing Dexia today are a "replica" of those the bank encountered three years ago.

Ratings agencies have highlighted structural problems including access to short-term financing on inter-bank money markets, and Dexia risks becoming the first major banking institution to fall victim amid the European sovereign debt crisis.

Three years ago, Belgium, France and Luxembourg, where 3,000 employees are also based, injected 6.4 billion euros into the bank, offering public guarantees for depositors.

European Commission anti-trust services demanded a restructuring in exchange for that aid.

One option, similar to that enacted by a number of banks in Ireland and elsewhere during the credit crunch, is the creation of a "bad bank" for bad debts.

"That is a possibility," added Belgian Finance Minister Didier Reynders. "We have spoken a lot about that," he added.

© 2011 AFP

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