* EU Finance Ministers meet to discuss pressure on banks
* Italy strikes out at recapitalisation plan
* Political impasse could prompt ECB to act
By John O'Donnell and Francesca Landini
BRUSSELS/MILAN, Nov 30 EU finance
ministers examined ways to revive lending among European banks
on Wednesday, but disagreement over how best to reinforce
financial institutions with new capital looked to have put an
immediate solution to the problem out of reach.
Banks' reluctance to lend to one another is a source of
growing alarm at the European Central Bank, which has struggled
to thaw the freeze with half a trillion euros of liquidity and
fears it could undermine attempts to tackle the sovereign debt
The EU's 27 finance ministers, meeting on Wednesday, had
been due to sign off details of a 106-billion-euro plan to
recapitalise banks, intended to revive confidence among nervous
counterparts who have shunned EU lenders.
But a backlash from countries like Italy, which can no
longer borrow at affordable rates and would struggle to find the
nearly 15 billion euros the EBA watchdog said it needed to help
its struggling banks, has raised doubts over the programme.
The head of the Italian markets authority Consob questioned
the way the EBA (European Banking Authority) had worked out the
banks' capital shortfall and said a drive to strengthen their
finances risked exacerbating a credit squeeze.
Giuseppe Vegas told la Repubblica daily on Wednesday that
Consob is in talks with the Bank of Italy to ask for a
reassessment of these rules.
"In Italy there is a banking worry," Vegas said. "Money is
not circulating anymore. The main risk is a spread of a credit
The EBA, which is in charge of the recapitalisation drive,
has said Italian banks need almost 15 billion euros in order to
reach a tier one capital ratio of 9 percent by June next year.
Other countries such as Germany have also challenged the EBA
over its calculations.
The remarks from Vegas echo recent comments from Giovanni
Ferri, an academic who sits on the EBA's expert advisory group,
who argued that Italian banks should not be forced to make
provisions for a collapse in value of the country's bonds.
"Including the exposure to bonds of their own country to
assess banks' recapitalisation requirements makes no sense,
since a bank is in any case affected by the default of its own
country," he said, adding that recapitalisation would do little
to protect banks in such circumstances.
The ministers are also set to reject proposals to combine
state guarantees across the EU into a single scheme for banks,
an idea academics and financial experts had said was necessary.
It will now be up to individual countries to stand behind
their lenders if they experience difficulty borrowing.
But while such a move may work for economically strong
countries like Germany, it will do little to lift confidence in
banks in weaker states such as Spain or Portugal.
A similar guarantee by Ireland for its financial system
ultimately overwhelmed it, forcing it to seek an international
If banks and countries are struggling to raise capital, they
can theoretically turn to the euro zone's EFSF rescue fund as a
last resort, although that has also been thrown into doubt by
the struggle to leverage up the EFSF's own resources.
The political impasse on both fronts would add to the case
for the European Central Bank to intervene more aggressively to
Last week, people familiar with the matter said the ECB was
looking at extending the term of loans it offers banks to 2 or
even 3 years to try to prevent a credit crunch.