Dijsselbloem Pledges to Resist Calls for State Aid for Banks

  • Jeroen Dijsselbloem says banks must sort out their problems
  • Euro-area finance chiefs hold first meeting since Brexit

Eurogroup Chairman Jeroen Dijsselbloem pledged to resist calls for public money to support troubled European lenders, insisting their problems need to be solved by banks themselves.

Italian Prime Minister Matteo Renzi is seeking a green light from the European Commission to recapitalize Banca Monte dei Paschi di Siena SpA and other banks while sparing creditors from facing losses if taxpayer funds are used.  He’s racing to shore up a financial system burdened by about 360 billion euros ($399 billion) of non-performing loans amid the European Central Bank’s increasing pressure on Italian lenders to clean up their balance sheets.

While EU officials and finance ministers including commission Vice President Valdis Dombrovskis and Italian Finance Minister Pier Carlo Padoan stressed that the issue was not on the agenda at the Eurogroup meeting in Brussels Monday, the matter was the elephant in the room. Monday’s meeting of euro-area finance chiefs was the first since the U.K. referendum to leave the European Union exacerbated a selloff among Italy’s lenders.

The rules are clear on state support for banks, Dijsselbloem told reporters, saying that options are limited and that bank investors should bear potential losses. “The Italian government does want to solve the issue now and that -- in itself -- is positive.” It is up to the commission and central banks to deal with the issue, he added.

Stress Tests

There are plenty of ways to apply a bail-in within the existing rules and spare small savers, German Finance Minister Wolfgang Schaeuble said. “We will get the results of the stress tests, which the European banking supervision carried out, in the second half of this month and before we have the results, we shouldn’t speculate,” Schaeuble said. The stress test results will be published July 29.

In its talks with the commission, Italy favors a precautionary re-capitalization under the EU’s bank-resolution rules, which allow governments to bolster lenders when capital gaps emerge in stress tests, according to people familiar with the matter. Renzi himself said an accord with the EU was “within reach” during a live interview on the website of Italian newspaper Corriere della Sera.

Bailout Fund

Asked about a call by David Folkerts-Landau, Deutsche Bank AG’s chief economist, for a 150 billion-euro bailout fund to recapitalize Europe’s beleaguered banks, particularly those in Italy, Dijsselbloem said on his arrival at Monday’s meeting: “There have always been and will always be bankers that say ‘we need more public money to recapitalize our banks,’" adding that he would resist such calls.

After the meeting, Dijsselbloem told reporters he had “reacted aggressively” in his earlier remarks and explained that he had been reacting to “calls from a couple of executives from very large banks in Europe which said that very large sums of public money need to be made available to the banks.” He added that he “wasn’t specific about Italian banks” and that public money could be used under certain circumstances.

Dombrovskis struck a conciliatory tone in Brussels, saying “there are a number of ways how this problem can be addressed should any liquidity or capital needs arise in Italy’s banking sector,” while respecting “EU rules and without harming financial stability or retail investors.”

Savers will be protected by the Italian government, Padoan insisted before the meeting. The authorities are working to prepare “precautionary tools that, as the word says, will be used only if necessary” and banks that need to recapitalize are doing so on a market basis, Padoan said.

“Definitely there must be a middle way,” Malta’s Finance Minister Edward Scicluna said. “But we can’t just bend the rules for the sake of bending them because now’s the first time we need to use them.”

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