Europe fails to find united front on reinforcing banks

Tue Nov 8, 2011 2:54pm EST
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By John O'Donnell and Julien Toyer

BRUSSELS (Reuters) - European Union finance ministers failed to agree on Tuesday how to shore up sagging banks and avert a credit squeeze, as rising borrowing costs for Italy threaten to unleash a new and more dangerous phase of the euro zone debt crisis.

Against the worsening economic backdrop, European banks are finding it hard to borrow and are increasingly reluctant to lend to one another.

In an attempt to arrest this creeping credit freeze, ministers examined offering state guarantees to borrower banks on Tuesday but became bogged down in deciding whether to pool such guarantees in Europe or ask countries to go it alone.

"The point is to what extent you pool together guarantees for banks," said one official. "There are differences of views on that point."

Austria's finance minister and others said two schemes were now being considered -- one a common "harmonized" model of guarantees for banks that need to borrow and another a "consortium" where state guarantees for banks are gathered.

"A collectivization of the guarantees at a European level ... everyone together ... Europe makes one guarantee pot ... was ruled out," Maria Fekter told journalists after the meeting.


A suggestion by the European Investment Bank (EIB) that its shareholders, which include all 27 EU states, pump in more cash so that it can lend more, also received a cool response, she said.   Continued...