Juncker urges caution on banks' role in rescue fund

8th November 2010, Comments 0 comments

The head of the eurozone finance ministers voiced scepticism Monday over a proposal backed by France and Germany to make banks absorb losses in any future rescue of a country in trouble.

"I would not want us to chase investors out of the eurozone and so I hope for a wise approach," Jean-Claude Juncker, prime minister of Luxembourg, told a European parliament committee.

EU leaders argued at a two-day summit last month over the role of the private sector in assuming losses under a future permanent fund aimed at preventing a new debt crisis in the single currency area.

European Central Bank chief Jean-Claude Trichet expressed opposition to making the private sector share the burden under the future fund.

"Just like Mr. Trichet, I warn" against the idea that "the private sector must be involved in all crisis resolution," Juncker said.

Forcing the private sector to share the burden could increase the reluctance of investors to lend money to the weakest eurozone members and trigger a rise in the interest charged by lenders to such states.

The borrowing costs of eurozone weak links Greece, Ireland and Portugal shot up last month after EU leaders agreed to create the permanent fund, which would replace a temporary safety net that expires in 2013.

© 2010 AFP

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