* Broad agreement that banks need 100 bln euros
* Diplomats say Spain, Italy, Portugal blocking deal due to
costs
* Merkel calls on indebted countries to convince markets
By Annika Breidthardt and Daniel Flynn
BRUSSELS, Oct 22 (Reuters) – EU finance ministers neared
agreement on Saturday on a framework to provide 100 billion
euros to European banks, but were still wrangling over how to do
it as Spain, Italy and Portugal raised concerns over the cost.
Meetings were being held over the weekend to tackle Greece’s
debt and its impact on the European banking system. On Saturday,
finance ministers were trying to figure out how to bolster the
capital of European banks to cope with any Greek default, and
prevent contagion to other heavily indebted countries.
EU officials have said that almost 100 billion euros is
required to reinforce the region’s banking system. European
banks would be required to increase their core tier one capital
ratio to 9 percent to help them withstand losses on sovereign
debt, officials have said.
Banks that cannot raise money on the markets will have to
turn to national governments or the European Financial Stability
Facility (EFSF).
While there was basic agreement on Saturday afternoon over
the size of recapitalization, finance ministers were still
wrangling over how long banks had to recapitalize. They had also
not yet agreed on the order in which banks would tap the private
sector, government money and the euro zone’s rescue scheme – the
European Financial Stability Facility, or EFSF.
In particular, Italy and Spain did not want to have to take
a programme of aid from the euro zone in order to help their
weak lenders, said one diplomat.
“There is 24 against three – Italy, Spain and Portugal,” said
one euro zone diplomat. “They think it’s too expensive. They
don’t want to pay it.”
The pan-European drive to recapitalise banks is designed to
win back market confidence and make it easier for EU banks to
borrow again amid a creeping credit freeze, triggered by worries
over the future of the euro zone.
In a speech to members of her Christian Democrat party on
Saturday, German Chancellor Angela Merkel urged countries like
Italy and Spain to reduce their sovereign debt levels.
“Spain has already done a lot but it will probably have to do
more to win back the markets’ confidence,” Merkel said.
“If they don’t do anything with their budgets, if they
continue to have budget deficits equal to 120 percent (of GDP)
like Italy, then it won’t matter how high the protective wall is
because it won’t help to win back the markets’ confidence.”
France and Germany have been divided over the best way to
scale up the EFSF, and Merkel and French President Nicolas
Sarkozy were scheduled to meet late on Saturday to try to break
the deadlock before Sunday’s summit of leaders.
They were due to be joined by International Monetary Fund
managing director Christine Lagarde, European Central Bank
president Jean-Claude Trichet, European Council President Herman
Van Rompuy and Commission President Jose Manuel Barroso.
FRENCH FEARS
France is keen to rely on the EFSF and fears its credit
rating could come under threat if the wrong method is chosen to
scale up the fund to prevent contagion spreading to Italy and
Spain, the euro zone’s third and fourth largest economies.
Ratings agency Standard Poor’s said on Friday it was
likely to downgrade France and four other states if Europe slips
into recession. It was the second agency this week to cast doubt
on France’s rating, after Moody’s on Tuesday.
But Bundesbank president Jens Weidmann said in a newspaper
interview released on Saturday that repeatedly expanding the
euro zone rescue fund would not resolve the euro zone crisis.
Euro zone finance ministers made some progress on Friday,
agreeing that holders of Greek government bonds would need to
take far more than the 21 percent haircut brokered in July.
“We have agreed yesterday that we have to have a significant
increase in the banks’ contribution,” Jean-Claude Juncker, who
chairs the euro group of finance ministers, said on Saturday
morning.
A bleak analysis by the EU and the International Monetary
Fund showed on Friday that private holders of Greek debt may
need to accept losses of up to 60 percent on their investments.
Austrian Finance Minister Maria Fekter told reporters
Italian treasury official Vittorio Grilli would negotiate
heavier debt writedowns with private investors as part of a
second Greek aid package.
Greece’s finance minister welcomed a decision late on Friday
to approve an 8 billion euro loan tranche that Athens needs next
month to pay its bills.
“The disbursement of the sixth tranche is an important and
productive step,” Evangelos Venizelos told reporters on
Saturday.
“Greece is not the central problem, now the point is to take
more general and more constructive decisions for the euro zone
as a whole.”
Article source: http://www.reuters.com/article/2011/10/22/eurozone-idUSL5E7LM0P120111022