BRUSSELS – European Commission president Jose Manuel Barroso (photo) announced a five-point plan Wednesday to address Europe’s sovereign debt problems, saying policymakers need to act immediately to resolve the long running crisis. “We now need to get ahead of the curve,” Barroso told the European Parliament, CNN informs.
Barroso, who heads the European Union’s executive body, outlined a series of measures that represent a “comprehensive response” to the debt problems that are putting stress on the European banking system. He said European leaders need to act quickly and agree on the plan at the next meeting of the European Council on October 23. Barroso said the first step is to take “decisive action on Greece,” including the latest installment of bailout money for the debt stricken nation. Greece should also receive a second “adjustment program,” based on a combination of private sector involvement and “adequate financing” from European governments, he said. Barroso called on European leaders to “urgently strengthen the banks,” which have been hit by liquidity problems linked to fears that the debt problems in Greece could spread to Italy and other euro area nations. “The sovereign contagion and banks, whether we like it or not, are now linked,” he said.
Echoing recent comments made by the leaders of Germany and France, Barroso said banks should first seek to raise capital from private investors. If they cannot, he said European states should inject capital into banks before tapping funds from the European Financial Stability Facility. Barroso also called on the European Banking Authority to conduct another assessment of the banking system to determine which banks have the largest exposure to distressed government debt. Banks that do not meet new capital requirements should be prevented from paying dividends to investors and bonuses to employees, he said. In addition, Barroso said EU policymakers should “fast track” policies aimed at enhancing stability and economic growth in Europe. Barroso said policymakers should accelerate the adoption of the European Stability Mechanism, a permanent replacement for the temporary EFSF. He also called for swift action on a proposed financial transaction tax. In addition, he urged policymakers to take steps toward greater cooperation on economic and fiscal policies across the 27-member European Union. But he also said the need to make longer-term structural reforms should not prevent officials from taking immediate action on measures to contain the crisis.
Deutsche Bank: bank recapitalisation is counterproductive
Deutsche Bank Chief Executive Josef Ackermann Thursday opposed Barroso’s demand, saying it wouldn’t tackle the real problem and private investors wouldn’t provide funds for such a recapitalization, Wall Street Journal informs. “The injection of capital wouldn’t address the actual problems,” as funding of banks is not the problem but the fact that government bonds are not risk-free anymore, Ackermann said at a Deutsche Bank conference in Berlin. Instead, he urged governments to restore trust in the solidity of state finances, adding Deutsche will do everything “to not take state aid.” Ackermann also warned that the debate on forced bank recapitalizations suggests that bigger write-downs on Greek debt now appear more probable.
Private bondholders should not be asked to shoulder losses on their government debt beyond Greece, Ireland’s prime minister, Enda Kenny, said in her turn on Wednesday, seeking to allay fears that other struggling countries could follow in the footsteps of Athens, Reuters informs, quoted by Mediafax. Enda Kenny is worried that the early introduction of the ESM permanent euro zone rescue scheme, which would also see a framework for country debt default, will prompt fears that Ireland will ask bondholders to take losses.