Germany challenges use of euro zone cash to repair banks

Thu Nov 14, 2013 5:16pm EST
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By John O'Donnell and Michelle Martin

BRUSSELS (Reuters) - Germany challenged a central plank of plans to forge a banking union in the euro zone on Thursday, arguing against the use of the currency bloc's funds to help lenders exposed as dangerously weak by health checks next year.

As finance ministers gathered in Brussels to outline plans to deal with banks still in difficulty, Germany's finance minister hardened his stance on the use of the bloc's emergency fund, according to people close to the talks.

Ministers had been drafting a joint statement to outline their plan of action after bank health tests next year to draw a line under the region's financial crisis.

But sharp divisions emerged between France, which wants a euro zone safety net, and Germany, which is worried that it will shoulder much of the burden if weak countries turn to the bloc's emergency fund.

Many consider a euro zone backstop central to building a banking union to avoid a repeat of events in Ireland, which required a sovereign bailout when it buckled under the weight of its banks' debts.

Earlier this year, euro zone countries agreed that their rescue fund, the European Stability Mechanism, could provide direct assistance to banks, not just indirectly by lending to governments.

This is a key demand of some of Europe's biggest countries - France, Italy and Spain. On Thursday, Germany called that into question.

Ahead of the meeting, French Finance Minister Pierre Moscovici told reporters: "France continues to believe that we ... must not exclude direct recapitalization by the European Stability Mechanism as a last resort."   Continued...

French President Francois Hollande (L) German Chancellor Angela Merkel (R) and European Commission President Jose Manuel Barroso leave after a news conference at the end of an international summit on youth unemployment attended by heads of states from EU countries at the Elysee Palace in Paris, November 12, 2013. REUTERS/Philippe Wojazer