German Chancellor Angela Merkel insisted on Friday the eurozone rescue fund should only be used to prop up banks as a last resort, ahead of a weekend meeting with French President Nicolas Sarkozy at which they are expected to thrash out how to strengthen the region’s banks.
The 440 billion euro European Financial Stability Facility (EFSF) has been redesigned to help banks and buy up government bonds in an effort to beef up Europe’s crisis fighting response.
Merkel told reporters after talks with Dutch Prime Minister Mark Rutte that they had both agreed that, if recapitalisation were needed as now looks likely, this should be done according to a “hierarchy” of methods for raising the capital.
“The banks must first try to raise the capital themselves, if that doesn’t work then the member state should come up with instruments as we did in 2008-2009, and only then when the country cannot cope on its own can the facility - the EFSF - be used,” Merkel said.
Receiving such aid from the EFSF would involve the country in question agreeing to conditions including a programme for structural reform, Merkel added. “This will definitely be discussed at the next summit,” said Merkel.
She stressed that the “philosophy” behind the EFSF - which European leaders granted extra funding and powers to buy bonds and help banks in July - was to stress both solidarity with struggling euro states but also the “willingness to reform of states that receive aid”.
A German source said earlier that France, whose banks are exposed to the sovereign debt of struggling euro states, wanted to use the EFSF to recapitalise its banks. The source called this a French “misunderstanding” of how the fund works.
Merkel and Sarkozy are under pressure from financial markets and Washington to settle their differences on how to use the euro zone’s financial firepower to resolve the debt crisis threatening the global economy. ( From The Gulf Today )