Analysis: America to Europe: Stronger banking union would help boost growth

Wed Jan 8, 2014 6:08am EST
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By Jason Lange

BERLIN (Reuters) - The United States has a message for Europe: If you want to help your ailing economy, consider pledging taxpayer money from across the euro zone to help troubled banks.

Washington dispatched Treasury Secretary Jack Lew this week to Paris, Berlin and Lisbon in part to convey concerns about the euro zone's need to revitalize banks crippled by a debt crisis.

The issue has jumped up the United States' worry list, overshadowing a previous spat with Berlin about criticism of Germany's export-driven economic model.

Speaking in Paris on Tuesday, Lew urged Europeans to go beyond the deal struck last month to create shared institutions for winding down failed banks.

Washington "would like to see more action taken" to create common backstops for banks and to insure they have enough capital to make enough loans to create jobs, he said.

"The more capital that there is in European banks, and the stronger the backstops are, the better it is for the European economy, the U.S. economy and the world economy," he said.

In private, U.S. officials have been more direct on the banking union's shortcomings. A shut-down fund would use bank levies to amass 55 billion euros ($75 billion) over the next decade, a tiny sum relative to size of bank balance sheets.

Also, European countries whose public finances have been devastated by a debt crisis might be hard-pressed to bail out troubled banks on their own.   Continued...

French President Francois Hollande (L) welcomes U.S. Treasury Secretary Jack Lew (C) and French Finance Minister Pierre Moscovici (R) at the Elysee Palace in Paris January 7, 2014. REUTERS/Philippe Wojazer