European Union Economic and Monetary Affairs Commissioner Olli Rehn said he’s working to resolve disputes in how the bloc’s crisis fund can be used to recapitalize struggling banks in the region.
“It seems there have been different interpretations about the June decision,” he said in an interview yesterday in Haemeenlinna, Finland. “Already this week the member states have begun to discuss with the help of the European Commission on what exact rules could be implemented in bank recapitalization. This work proceeds in parallel to the work on the banking supervisor.”
Disagreement erupted after finance chiefs from Germany, the Netherlands and Finland signaled a retreat from a June agreement among European leaders allowing the euro area’s bailout fund to recapitalize banks. The Sept. 25 statement by Wolfgang Schaeuble, Jutta Urpilainen and Jan Kees de Jager excluded “legacy assets” from the region’s rescue facility.
Finland wants to confine direct recapitalization by the rescue fund to cover bank bailouts that occur after a single financial supervisor is created, Urpilainen said. While it was possible that some states had “differing expectations,” there was “no conflict because the possibility of direct bank recapitalization is explicitly tied to the existence of a single bank supervisor,” she said.
The comments mark a blow to Ireland’s campaign to reduce its debt load. Irish Deputy Prime Minister Eamon Gilmore said on Sept. 27 that the letter by the German, Dutch and Finnish finance ministers won’t undermine the June agreement.
The difference between 10-year Irish and similar-maturity German benchmark bond yields narrowed four basis points to 361 basis points. One basis point equals 0.01 percentage point.
“What’s essential is that all member states commit to the June decision on direct bank recapitalization, which may be possible through a separate decision once the European banking supervisor has been established and in operation,” Rehn said.
A decision should be “possible” by the end of the year if all parties “work with the same pace as the commission,” Rehn said of the bank recapitalization rules.
Rehn, who’s Finnish, also said that Finland should be careful in not prolonging the crisis as it holds a “hard-line stance on many crisis issues.”
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