* No plans to allow ESM to directly recapitalise banks
* ESM direct recapitalisation would entail bank management
* Germany, the Netherlands, Finland opposed to such change
By Jan Strupczewski
BRUSSELS, April 26 Euro zone countries are
unlikely to agree to change current rules to allow their
temporary or permanent bailout funds to directly recapitalise
banks without the intermediation of governments, euro zone
officials said on Thursday.
German daily Sueddeutsche Zeitung wrote on Thursday, without
citing sources, that the European Central Bank and a group of
euro zone countries were working on a possible initiative to
enable crisis-stricken banks to have direct access to Europe's
permanent bailout fund.
The discussion stems from market concerns about the banking
sector in Spain, where a sharp drop in real estate prices and a
recession have triggered investor expectations that Spanish
banks may need more money than previously thought to
"According to the Sueddeutsche Zeitung's information, a
group of euro zone countries will check in the next two weeks
how credit could be directly transferred to banks that are
strapped for cash but able to survive," the paper said, noting,
however, that Germany strongly opposed this.
EU Economic and Monetary Affairs Commissioner Olli Rehn told
Reuters in an interview last Friday that there were no plans to
use the permanent European Stability Mechanism (ESM) or the
temporary European Financial Stability Facility (EFSF) to lend
to recapitalise Spanish banks.
And EFSF Chief Executive Klaus Regling also said last week
there were no talks to change the rules to allow the bailout
funds to by-pass national governments and lend directly to
"That's the system, there's no discussion at all about
changing it," Regling told a conference in Washington. "If I
were asked to give money directly to banks I would have to
manage banks... We are just not set up for that."
"When banks need additional capital they are supposed to go
to shareholders, if that doesn't work they go to the national
government, only as a third line of defence could there be a
request to the ESM, EFSF," he said.
Asked about the Sueddeutsche article, euro zone officials
said on Thursday that while some may personally support the idea
of direct recapitalisation, it was highly unlikely to become
NO PLANS TO ALLOW DIRECT RECAPITALISATION
Euro zone officials are to discuss bank recapitalisation
guidelines on Thursday, but no change to the current rules is
foreseen, one official involved in the talks said.
"It (direct bank recapitalisation) has been discussed time
and again. We don't expect any change now and ECB
representatives today do not have any instruction to that
effect," the official said.
The issue of whether to allow the ESM, the permanent 500
billion euro bailout fund that is to come online in July, to
directly recapitalise banks had already been discussed
extensively last year and rejected.
"Some people have this bee in their bonnet, but only on a
personal basis. It will not happen," a second, senior euro zone
The ESM can lend to recapitalise banks, but only through a
government, with which it signs an agreement that contains
conditions under which the money is lent.
This rule is written down in the treaty establishing the
ESM, which has already been ratified by some countries and
should be legally valid by July.
To change it, the ESM rule book would need to be changed
with the ensuing ratification, once more, in national
"This was an issue that was fiercely debated during the
preparatory stage of the ESM Treaty and I think that it has zero
possibility to fly now, as either Finland, Germany or the
Netherlands or, more likely, all of those would not agree to
it," a third euro zone official said.
The argument of the supporters of direct recapitalisation is
that a ESM loan it would not further worsen the debt of the
sovereign, like a loan for recapitalisation would.
Direct recapitalisation would also allow the government to
avoid the stigma of a country under a bailout programme.
"It does not really make sense either: if a euro zone member
state is in such a bad condition that it cannot capitalise its
own banks, then surely it is in need of a programme?" the third
"Then again, if the plan is to have free money from the euro
zone without the need to agree to any real conditions, then this
makes sense. But it sounds too naive to be true for anyone to be
thinking that this could fly," the official said.