BELGIUM: EU's executive wants member states to take coordinated action to restore financial market confidence and urges the U.S. congress not to kill the bailout plan again

Record ID: 561917

  • Title: BELGIUM: EU's executive wants member states to take coordinated action to restore financial market confidence and urges the U.S. congress not to kill the bailout plan again
  • Date: 2nd October 2008
  • Summary: (BN10) BRUSSELS, BELGIUM (FILE) (REUTERS) EXTERIOR DEXIA BANK
  • Embargoed: 17th October 2008 13:00
  • Keywords:
  • Location: Belgium
  • Country: Belgium
  • Topics: International Relations
  • Reuters ID: LVABY0MR6T55PU0DJZUPPS736RL9
  • Story Text: The European Commission said on Wednesday (October 1) it was doing its utmost to support solutions to stabilise European banks and would act quickly to review rescues but EU state aid rules must be respected.
    The statement comes as EU Internal Market Commissioner Charlie McCreevy was about to put forward proposals to better regulate the banking industry in an effort to avoid the current crisis and force banks to tie up more capital to cover risky operations.
    Several European banks have been faced with rapidly put together rescue packages. Belgium partially nationalised Fortis bank in coordination with the Netherlands and Luxembourg. The next day it was faced with the recapitalisation of Dexia bank in coordination with France. Britain nationalised Bradford and Bingley, Ireland gave unlimited guarantees on all deposits in Irish banks and Germany put forward a plan to rescue Hypo Real Estate Holding.
    It is European Competition Commissioner Neelie Kroes' job to approve member state aid to ailing banks.

    "We are acting to approve very quickly rescue measures for banks in order to protect financial stability and avoid spillovers on the rest of the economy," Kroes said.
    Rebuffing French calls to reconsider European Union competition regulations in the light of the global financial crisis she said the entire EU executive agreed that the existing state aid rules were up to the task of coping with the crisis and would avoid distortions of competition by divergent national measures.

    "The state aid rules are part of the solution and they are not part of the problem," she said.
    The Commission's President, Jose Manuel Barroso said the bloc of 27-nations needed to act together.

    "It's not just a problem of injecting liquidity, we also need to inject credibility in the European response. That is why we are asking and urging member states for a closer cooperation," he said.

    "We are in a situation where only with a coordinated action from all those involved we can restore confidence in the markets," he added.
    Barroso is urging stronger European financial supervision and greater consistency in national deposit guarantee schemes to stabilise the financial system.
    Although he believes the existing system of regulation, which is largely based on national governments and regulators, could cope with the current crisis he believes the European Union should go further in coordinated action to restore full confidence.

    "We are ready to put forward the European response to its financial crisis. First, we need a further strengthened of the supervision structures at European level. Second, we must refine the rules on the evaluation of complex assets. This includes adapting our accounting rules to a new situation, in particular if other markets also apply changes. We don't want European banks to be in a situation of competitive disadvantage to other banks in the world. Third, we need to improve the consistency of deposit guarantee schemes. Fourth, we should increase transparency of executive pay, building on the Commission's 2004 accommodation," Barroso said.
    Finally, Barroso urged the U.S. Senate to approve a revised 700 billion U.S. dollars (USD) financial rescue plan aimed at tackling the crisis.
    A revised package which the Senate will vote on sometime after 7:30 p.m. EDT (2330 GMT) would increase to 250,000 USD from 100,000 USD the amount of individual deposits guaranteed.
    The main aim of the package remains unchanged -- to allow the U.S.
    Treasury to buy toxic mortgage-related assets from banks in a bid to unlock credit markets and head off deeper damage to the U.S. and global economies.

    "I renew our call for a swift decision by U.S. legislators on the so-called 'Paulson Plan' as amended. U.S. must take responsibility. I trust that United States will show the statesmanship that is now required for their sake and all our sake," said Barroso.
    Barroso declined to make specific proposals such as a single European financial regulator or a pan-European guarantee on all savings deposits, saying he did not want to announce ideas that would not be followed by practical measures.
    But the Commission was working closely with French President Nicolas Sarkozy, holder of the rotating EU presidency, on measures that could achieve consensus, he said.
    Asked whether he favoured a greater role for the European Central Bank in banking supervision, he said the Commission was in close contact with the ECB, which was doing a great job in injecting liquidity to stabilise credit markets.
    Barroso referred indirectly to British irritation at Ireland's sudden decision to guarantee all deposits in Irish banks, saying: "We need to improve the consistency of deposit guarantee schemes."
    He also insisted that EU governments stick to pursuing structural reforms to make their economies more competitive, because the "real economy" was going to be under increased pressure as a result of the credit crisis.
    Meanwhile, in France, fearing the gathering clouds of the global financial crisis over France, the country's Prime Minister, Francois Fillon, has proposed the use of funds from private French savings accounts to prop up the French banking system.
    Fillon assured a French daily newspaper that there would be no bankruptcies in the French banking system, and that the government would not rule out any possible solutions to avoid bank failures.
    One option on the table is to make available funds from the Livret A, a popular personal savings account which guarantees a four percent return to account holders for up to 50,000 euros. Funds from the Livret A have traditionally been used to finance low-income housing in France.
    Chief economist at Xerfi Groups Alexander Law told Reuters:
    "What Francois Fillon and President Sarkozy have come up with is a way of saying, well we have got savings plans, the so-called Livret A, normally its four percent interest rate which is capped I think at 15,000 euros which is not very much, and that generally pays for social housing in France. So what they are saying is that at the moment there is lots of money in this savings plan which could go to financing banks and then after that, corporate investment. But that is only a medium-term solution because at one stage that cash will have to go back to social housing because that is what it is meant to do. In a way there are not that many solutions," Law said.
    French people who have Livret A are unhappy about the Fillon's proposal. One Paris resident Samira said she didn't agree with the idea.

    "People who have Livret A are people who don't have a lot of money. So there is no reason for them to finance banks who have made some operations that we do not have any control of."
    Others are thinking of withdrawing their money from the bank.
    One woman, Mrs Fuselier, said she held money in Livret A but was thinking she might "withdraw all my money from it".
    French President Nicolas Sarkozy has also called for a summit of leaders of the Group of Eight (G8) industrialised nations and some of their counterparts from emerging economies by the end of the year to discuss overhauling the financial system.
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