BRUSSELS, Belgium (AP) - The European Commission said Tuesday it is "refining" the rules for bank bailouts now that the global financial crisis is spilling over into the broader economy, triggering a recession.
Neelie Kroes, the EU antitrust chief, told EU finance ministers her record in approving temporary aid in the past two months has boosted the credibility and solvency problems of banks right after the global financial meltdown.
She said it was time now to shift the focus from rescuing banks to subsidies that can grease the flow of credit between banks and to the economy, which is contracting, by making the EU subsidy rules more flexible.
The EU executive is to announce details in a matter of days.
EU rules ban governments from giving money to industry unless the aid is temporary, does not distort competition and will be repaid — with interest at market rates.
In the past two months, governments have issued credit guarantees totaling euro1.8 trillion and committed euro280 billion in recapitalization schemes in a dozen nations. The Commission has approved 20 national aid measures in 12 EU nations but is under pressure to be quicker and more generous in judging national subsidy packages.
Given the bad economic outlook, the EU finance ministers told Kroes to speed up approval of financial sector aid plans.
"We all have to be intelligent enough to show some flexibility," said Christine Lagarde, the French finance minister who chaired the EU meeting.
Kroes said from now on she will judge subsidies in terms of boosting growth, for instance by approving aid enabling banks to issue credit to companies making "environmentally friendly products" or extend risk capital to industry.
Until now, government rescue packages benefited ailing banks. The finance ministers urged Kroes to also approve aid for fundamentally sound banks saying in their statement, "It is important not to discourage capital raising from private investors."
Kroes' appearance before the ministers followed criticism of her in Germany, the Netherlands, Sweden and France where officials have accused her of foot-dragging in judging rescue operations for banks and other financial institutions.
"It all has to go a bit faster," German Finance Minister Peer Steinbrueck told reporters before he and his 26 EU counterparts met with Kroes.
German criticism focuses on a November government recapitalization for Commerzbank — Germany's second-largest bank by assets — of euro23.2 billion (US$29.3 billion), including an euro8.2 billion ($10.3 billion) credit line.
EU officials said the problem with the Commerzbank bailout touches on the conditions under which the bank must repay any aid. The EU executive must yet approve the Commerzbank accord and French recapitalization plans.
Also Tuesday, the finance ministers:
_ More than doubled a crisis fund for helping EU states in financial trouble. The limit of the fund — that benefits the 11 EU nations that do not use the euro — went from euro12 billion to euro25 billion. Last month, Hungary received a euro6.5 billion loan when its currency and share prices tanked.
_ Raised bank deposit guarantees to euro50,000 from June 30, 2009 — not retroactively as originally suggested. It will rise again to euro100,000 from Dec. 31, 2011. The ministers also set a new deadline for banks to pay out deposits within 20 days — down from current limits of up to 10 months.
_ Stepped up supervision over crossborder banks that would see national financial watchdogs work together on monitoring the 44 European banks that operate in different EU nations.
_ Backed a European Commission suggestion for sellers of debt repackaged as complex investments to hold on to at least 5 percent. This aims to make them more risk-conscious and stop selling on 'toxic assets' such as the subprime loans that triggered the financial crisis.
AP Business Writer Aoife White contributed to this story |