EU Leaders to Pledge ‘All Levers’ to Tackle Crisis

Euro Chiefs Spar on Greek, Spanish Aid
A European Union flag flies outside the National Bank of Greece in Athens. Photographer: Chris Ratcliffe/Bloomberg

European Union leaders will pledge “to mobilize all levers and instruments” to ensure financial stability and tackle the sovereign-debt crisis, according to draft conclusions prepared for a June 28-29 summit in Brussels.

The 27-nation bloc should “rapidly examine” EU proposals on bank capital requirements, deposit-guarantee programs and how to handle cross-border bank failures, according to the draft conclusions dated June 15 and obtained by Bloomberg News. “The current economic situation remains unsatisfactory” and shoring up the banking sector is important to restoring growth, according to the document.

The leaders also should commit to launching the European Stability Mechanism, the 17-nation euro zone’s 500 billion-euro ($632 billion) firewall, by July 9, according to the document. Lawmakers across the 17-nation currency union must ratify the fund before it becomes available for programs such as the 100 billion-euro bank rescue planned for Spain. The ESM’s start date depends mainly on the outcome in Germany, where the parliament may vote as late as the first week of July.

“The European Union is determined to continue to do everything necessary to put Europe on the track of growth,” the document said. These efforts should include cutting budget deficits and improving employment and other economic policies, it said.

Lending Power

The EU hasn’t yet agreed on how much it seeks to increase the capital, and therefore lending power, of the European Investment Bank. The draft document, without citing any numbers, showed a capital increase should take effect by Dec. 31 so the bank can invest in infrastructure projects across the EU.

Leaders will place particular emphasis on the findings of a forthcoming report on euro-area integration from EU President Herman Van Rompuy, European Central Bank President Mario Draghi, Luxembourg’s Jean-Claude Juncker and European Commission President Jose Barroso. The blueprint will offer a strategy for nations using the common currency to “go further” in their efforts to integrate economic policies while also working with the EU’s other members.

Draghi has backed calls for a move toward greater “banking union” as the EU moves to deepen its economic and political ties, a broad goal supported by Economic and Monetary Affairs Commissioner Olli Rehn and German Finance Minister Wolfgang Schaeuble. This effort, which will be a central plank of the euro-area blueprint, so far has not included specific proposals for how to fund any kind of EU-level bank backstop.

Unsecured Creditors

The European Commission, the EU’s regulatory arm, this month proposed requiring senior unsecured creditors to absorb losses when banks fail, in a proposal that also requires national-level resolution funds that would coordinate and backstop each other across borders when necessary. EU rules require countries to have national deposit insurance guarantee plans; as yet there are no formal proposals for an EU-wide deposit guarantee backstop.

The commission also has proposed rules to raise capital requirements, in order to meet a January 2013 deadline from the Basel Committee on Banking Supervision. The new Basel requirements more than triple the amount of top-tier capital that banks are required to hold as a buffer against losses.

-- With assistance from Jim Brunsden in Brussels. Editors: Jones Hayden, Simon Meier

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