Barroso pushes for coordinated bank action

THE European Commission is pushing for a coordinated capital injection for banks to shield them from the fallout of a potential Greek default as Germany urges each country to prepare its own blueprint.

“We are determined to do everything necessary to ensure that Europe’s banks are able to play their essential role in lending,” commission president, Jose Manuel Barroso, told reporters in Brussels yesterday. “Close coordination at European level is essential.”

Financial shares continued their advance after German Chancellor Angela Merkel fed speculation that euro policy makers are working on plans to boost bank capital.

On Wednesday, Ms Merkel made her most explicit comments yet on banks’ role in fighting the crisis, saying the European rescue fund should only be relied upon as a last resort.

“If a country cannot do it using its own resources and the stability of the euro as a whole is put at risk because the country has difficulties, then there’s the possibility of using the EFSF,” the European Financial Stability Facility, she said. Using the rescue fund is “always tied to a certain conditionality.”

Ms Merkel held talks in Berlin yesterday with IMF chief Christine Lagarde, World Bank president Robert Zoellick and Angel Gurria of the Organisation for Economic Cooperation and Development, among others. European Central Bank president Jean-Claude Trichet joined the talks after chairing his last rate-setting meeting. The finance ministers of Brazil, Mexico and France will also take part.

Mr Trichet said he was making a “strong call” to European banks and supervisors including the European Banking Authority to “do all what is necessary” to address the need for recapitalisation. Banks shouldn’t be reluctant to accept state help when needed, he said.

The ECB yesterday resumed covered-bond purchases and reintroduce year-long loans for banks as the sovereign debt crisis threatens to lock money markets.

France’s Le Figaro newspaper reported yesterday that the French government is working on a contingency plan to take stakes in the country’s lenders. However, Henri Guaino, an adviser to French president Nicolas Sarkozy, said the government isn’t planning to take stakes in banks, saying “it isn’t envisaged at the moment.” He said that “maybe a recapitalisation will be necessary” for banks.

Signals that European politicians may step up efforts to aid banks and push investors to accept bigger losses as part of a Greek bailout reflect international pressure to end the debt crisis and domestic opposition to expanding rescues.