merkel tells europe to prop up its banks
Last Updated : GMT 06:41:18
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Arab Today, arab today

Merkel tells Europe to prop up its banks

Arab Today, arab today

Arab Today, arab today Merkel tells Europe to prop up its banks

Berlin - AFP

Germany called on its EU partners to recapitalise the banking sector to help prevent the eurozone debt crisis spreading as the IMF warned the European Union to get its act together. Chancellor Angela Merkel said helping the banks was "justified, if we have a joint approach", giving nervous financial markets an immediate boost after days of heavy losses on fears the banking sector needs help urgently. She was speaking on a visit to EU headquarters after France and Belgium agreed to bail out Dexia, the first European bank to be dragged down by the eurozone debt crisis -- and which also had to be rescued in 2008. The debt crisis, beginning in Greece, has snared Ireland and Portugal and put Italy and Spain in the firing line too, threatening to sink the whole euro project as banks exposed to their debt find it impossible to raise funding. The resulting "credit crunch" has sparked warnings that there could be a replay of 2008 when US giant investment bank Lehman Brothers collapsed, nearly taking the global financial system with it but for massive government support. Merkel said that it "is important for the markets that we achieve results ... time is pressing and we have to act quickly". Germany, she said, was ready to show the way, putting fresh capital into its banks if necessary, while adding that there was no "magic wand" at Europe's disposal to resolve its problems. IMF Europe director Antonio Borges said that "somewhere between 100-200 billion (euros) will be more than enough" to back up the banks, adding it was "not that much money ... by no means beyond reach". Borges was in Brussels issuing the International Monetary Fund's latest report on European economic prospects. Neither he nor his report minced words after two days of hectic talks in Luxembourg that kept Greece waiting to see if promised bailout funds, on hold for the past month, will come through and save it from default. The IMF urged Europe to balance growth with austerity as it called for a "more than overdue" solution to the crisis, warning of recession next year if it fails to find the right recipe. A durable solution would require "some difficult decisions" to improve crisis management and convince sceptical markets that Europe can speak as one on economic and monetary affairs, the IMF said. Borges said that Europe should look closely at the need to help growth. "If ever there was a more significant recession in Europe, and I hope that is not the case but we cannot exclude it, then ... all those countries with fiscal leeway might want to consider that." Canada's finance minister Jim Flaherty, in a New York speech, warned that the EU must urgently address its debt woes or the crisis could become "too big for Europe to solve" and trigger a global recession. EU economic affairs commissioner Olli Rehn insisted, in the pages of the Financial Times, that there is now a "sense of urgency" for action, adding that eurozone nations were seeking a coordinated response to head off a banking crisis. European shares rebounded sharply Wednesday on hopes leaders will finally come up with a solution but in Athens, civil servants staged a 24-hour walkout in protest at a government plan to sideline 30,000 staff to reduce the deficit in return for the next tranche of debt rescue funding. The EU again demanded more sacrifices from Greece at the Luxembourg meetings and also warned banks they may have to shoulder more losses as part of the resolution of the debt crisis -- a point also raised by Merkel. Borges, for his part, said commitments made by Greece under a follow-on bailout agreed in July -- still stuck on the drawing board -- should focus on growth-enhancing reforms, rather than simply strangling the public sector. Merkel called on Italy to press ahead with its tough austerity measures after recent backsliding which saw Moody's slash its credit rating on the country on Tuesday. "Italy must stick to its commitments" so as to restore investor confidence, she said, noting how Portugal had managed to do so after its bailout. But Moody's piled on the pressure Wednesday by downgrading the credit ratings of some of Italy's biggest companies including oil major ENI and top bank UniCredit ENI. There was progress meanwhile on the European Financial Stability Facility when the Netherlands said it would vote on its expansion and new powers Thursday -- although hold-out Slovakia is still struggling with internal coalition politics over their approval.

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