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Setting the rules for bailing out banks

Thursday, June 20, 2013 - 02:17

June 20 - Euro zone finance ministers are discussing how their bailout fund can invest in a bank to save it from failure, laying a cornerstone of the banking union. It's seen as vital to restore economic growth but Ciara Sutton asks if it's enough to end the current malaise.

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Laying the foundations of a banking union vital to restoring economic growth. Finance ministers in Luxembourg are deciding when and how their bailout fund can invest in a bank to save it from failure. On the agenda - how much a government will have to contribute, which banks will be eligible for a rescue - and who could lose money in the process. SOUNDBITE) (Dutch) EUROGROUP CHAIRMAN JEROEN DIJSSELBLOEM SAYING: "I think we can find a solution, it will not be easy. Banks are different in each country, so that makes it difficult to come to a shared solution, but we should try to, because the stakes are very big." While some struggling euro zone countries are a little more stable there's concern stagnant growth and record unemployment could hamper a recovery. Leaders hope their offer of direct recapitalisation will boost confidence among euro zone banks and encourage them to lend, creating jobs in the process. IG's Brenda Kelly says that should help but there are other obstacles. SOUNDBITE, English, MARKET COMMENTATOR AT IG, BRENDA KELLY, SAYING: "I think a lot will depend on the German elections, anything that needs to go through these days seems to be hampered by the German constitution. So it will be just a lot of talk for the time being." A meeting of all 27 EU countries on Friday will also focus on failing banks - leaders are considering a new law to rescue or close them down. They're expected to decide how much of the ESM's 500 billion euro war chest can be used to help banks. It's thought the limit will be between 50 and 70 billion euros and in return the ESM will become a shareholder, with the ECB as overall bank supervisor. ECB board member Joerg Asmussen SOUNDBITE) (English) EUROPEAN CENTRAL BANK BOARD MEMBER JOERG ASMUSSEN, "It is necessary that we develop certainty in a way that investors around the globe know ex-ante what are the rules of the game here in Europe." But there may be some divisions to overcome. Bailed out Ireland, Greece and Cyprus are more likely to favour the new plan ... but Spain - which has only had a partial bank bailout - may not be so keen on anything that suggests it can't cope on its own.

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Setting the rules for bailing out banks

Thursday, June 20, 2013 - 02:17