Monday 23 April 2018

Sarkozy and Merkel to meet about expected €200bn bailout of banks

German Chancellor Angela Merkel shakes hands with French President Nicolas Sarkozy. Photo: Getty Images
German Chancellor Angela Merkel shakes hands with French President Nicolas Sarkozy. Photo: Getty Images

Philip Whiterow

The leaders of France and Germany are to meet in an attempt to thrash out how to fund an expected €200bn bailout of Europe's banks.

The problems over sovereign debt exposure in Europe's banks came into sharp focus last week with the collapse of Franco-Belgium lender Dexia.

After its collapse, a new set of bank stress tests are expected to be conducted by the European Banking Authority, a move that analysts say will heap added pressure on stretched balance sheets.

Some of Germany's banks are already preparing to raise billions in new funds from private sources, it was reported today, an option said to be favoured by German Chancellor Angela Merkel.

French President Nicolas Sarkozy, however, is said to want French banks to have access to the €440bn in the European Financial Stability Fund, which was originally set up to finance the rescues of Greece, Portugal and Ireland.

Dexia passed the last set of stress tests just three months ago, but this did not take into account its eurozone debt exposure.

A board meeting is being held today to discuss the break-up of the bank, while French and Belgian government officials are said to be finalising a plan to protect the bank's depositors. Both countries became part-owners following an earlier bailout in 2008.

Irish finance minister Michael Noonan confirmed yesterday that some German banks were planning to raise cash from investors.

"I know that some of the big German banks I was talking to personally intend raising money on the market," he said, adding that some other banks would also like to access the EU stability fund.

He added that there was "general agreement" that any Europe-wide bank bailout would be significantly in excess of €100bn.

The International Monetary Fund has estimated that Europe's banks overall need to raise €200bn in new capital to cover possible sovereign debt losses.

Germany is said to fear that if French banks use the stability fund it could be overwhelmed as other eurozone countries rush to follow suit.

Press Association

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