EU finance ministers break no new ground on debt crisis
EU finance ministers broke no new ground in dealing with the euro zone debt crisis in discussions over the weekend, instead absorbing some ideas and rejecting others and taking stock of progress on agreed steps.
Ministers and central bank governors from the 17 countries using the euro and the broader 27-nation European Union met yesterday and today in the Polish city of Wroclaw to discuss Europe's slowing economic growth and progress in beefing up euro zone defenses against the sovereign debt crisis.
In an unprecedented visit to the informal talks of top EU financial officials, US Treasury Secretary Timothy Geithner made an appearance in Wroclaw yesterday to urge Germany to provide more fiscal stimulus to the slackening euro zone.
But Geithner's call for action by those who can afford it was rejected because the euro zone believes that market trust in the sustainability of its public finances, and therefore consolidation, is more important than spending on growth.
"Fiscal consolidation remains a top priority for the euro area," said Luxembourg's Jean-Claude Juncker, chairman of euro zone finance ministers.
The finance minister earlier agreed that European banks must be strengthened in the follow-up to July stress tests as a report said a "systemic" crisis in sovereign debt now threatened a new credit crunch.
"We reached the conclusion that we need to make our financial system more robust," Spanish Economy Minister Elena Salgado told reporters after a meeting of EU finance ministers in the south-western Polish city of Wroclaw.
"There is a consensus that it would be good for our financial institutions to strengthen their capital to comply with Basel III requirements and to face any eventuality of the moment," she said.
However, the agreement does not mean European banks are likely to get large, additional capital injections from public coffers -- it is more an acknowledgement of the results of the European bank stress tests in July.
The tests showed a financing gap for banks of only 6 billion euros ($8 billion) -- a sum many investors believe could be much higher if the debt crisis worsens.
European banks are therefore struggling to borrow amid growing alarm among US money market funds, and other traditional dollar lenders, about the effect of a feared Greek debt default on European banks' books.
Persistent jitters over French banks' exposure to Italy and Greece hammered the shares of BNP Paribas and Credit Agricole .
On Wednesday, Moody's Investors Service downgraded Credit Agricole and Societe Generale , citing increased concerns about their funding and liquidity profiles in light of worsening refinancing conditions. It left the ratings of the biggest French bank BNP on review for downgrade.
"From our perspective, we see a clear need for bank recapitalisation," Swedish Finance minister Anders Borg told reporters on leaving the meeting of finance ministers.
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