Posted on September 27, 2012 by lucas2012infos | Leave a comment
the Netherlands and Finland have issued a joint declaration that
appears to unravel much of what was agreed at the last European summit
in June, when EU leaders paved the way for the direct recapitalisation
of troubled banks.
In a statement
issued on Tuesday (25 September) after a meeting of their finance
ministers in Helsinki, the three AAA-rated countries set out the terms
under which they would be willing to allow the euro zone’s permanent
rescue fund, the ESM, to recapitalise at-risk banks.
But the statement made a sharp distinction between future banking
problems and “legacy” difficulties – essentially saying that highly
indebted banks in Spain, Ireland and Greece will remain the
responsibility of those countries’ governments.
That is likely to frustrate Spain and Ireland in particular, as both
had interpreted the June summit as implying that a way would be found to
break the debilitating link between their indebted banks and the debts
of the government.
“The ESM can take direct responsibility of problems that occur under
the new supervision, but legacy assets should be under the
responsibility of national authorities,” read the statement by the
Dutch, Finns and Germans, the three countries that have taken the
hardest line during the debt crisis.
Asked for clarification, representatives of the three governments were not prepared to elaborate on the record.
But one senior eurozone official familiar with the discussions that
took part in Helsinki said: “All I can say is that the statement means
that ESM direct recapitalisation should not be used to take care of old
If it stands – and that depends on discussions that will take place
between heads of state in the coming days and weeks – the position
adopted by the Dutch, Finns and Germans is likely to cause deep
consternation in financial markets.
In Spain, the latest epicentre of the eurozone debt crisis, this
would put immediate pressure on the state’s finances as the €100 billion
European credit line for Spanish lenders would count as public debt,
something Madrid had hoped to avoid.
The country is expected to tap between €40 billion and €60 billion of
this money, equivalent to around 4-6% of gross domestic product.
“For Spain, direct bank recapitalisation is not a priority. If the
debt was to go up by 4%, that would be perfectly manageable as it would
remain below European Union average,” said a spokesman for the Economy
For Ireland, the situation is also unclear.
“Depending on how it is interpreted, it may or may not allow the
Irish government to sell its interests in the surviving Irish banks to
the ESM,” said John Fitzgerald of the Economic and Social Research
Institute, a Dublin-based think tank.
A spokesman for Ireland’s Department of Finance said: “We welcome
their ideas on how to give effect to the decision of eurozone leaders
that the ESM should have the capacity to recapitalise banks directly.”
“In respect of Ireland, technical discussions remain on-going on how
we can improve the sustainability of Irish financial system, in line
with the June summit mandate.”
Backtracking on June EU summit commitments
The June summit agreement created the impression in markets that the
ESM, which should come into force on 9 October, would be able to take
direct stakes in Ireland’s and Spain’s troubled banks in the coming
months, taking the burden off the state.
Instead it now appears likely that Spain and Ireland could remain
saddled with vast amounts of bank debt that will make it all the harder
for their governments to resolve these banking problems and get their
own finances on track at the same time.
Spanish officials were not immediately reachable for comment. But an
official in Brussels interpreted the statement as rowing back almost
completely on the June deal, a move that will undermine efforts to
resolve a debt crisis that has rumbled on for 2-1/2 years and
destabilised global markets.
“There are a couple of countries that are trying to backtrack but I
don’t think they will be able to muster the force to succeed,” the
official said, referring to Finland and the Netherlands.
“Legacy’ problems is a newcomer to the debate. It is one more case of this habit of walking away from decisions taken.”
A representative from one of the three finance ministries that issued
the statement sought to play down its importance, saying it merely
clarified what was agreed in June.
The official said that once the ESM is able to directly recapitalise
banks – which will only happen once a new supervisory authority under
the ECB is established next year – the aim was to establish which banks
in the eurozone were “viable” and which were “unviable”.
Only the viable banks would then qualify for recapitalisation from
the ESM. The rest would either have to find a way to be recapitalised
via the private sector or be wound up by the national government.
The official said the issue was now “up for discussion”, indicating
that the statement was designed to reopen the debate, an invitation
Ireland and Spain will no doubt take up quickly.
- 13-14 Dec .: EU leaders could adopt the plan for banking union at the formal December summit meeting.
- Jan. 2013 : If the rules are adopted, the European banking supervisor could start operation.
EurActiv.com with Reuters
- European Commission: Press statement on banking union proposals (12 Sept. 2012) [ FR ] [ DE ]
- European Commission: Q&A on banking union proposals (12 Sept. 2012)
- European Council: Euro area summit statement (29 June 2012)
- Joint Statement of the Ministers of Finance of Germany, the Netherlands and Finland (25 Sept. 2012)