Bloomberg News

Katainen Touts EFSF Precautionary Role, Doubts ‘Big’ Summit

October 06, 2011

(Adds comments on banks starting in fourth paragraph. See EXT4 <GO> for more on the European debt crisis.)

Oct. 6 (Bloomberg) -- Finnish Prime Minister Jyrki Katainen said Europe needs to build a firewall to protect healthy countries from the fallout of Greece’s oversized debt, while playing down expectations of a “big” breakthrough at this month’s euro summit.

Katainen said the Oct. 18 summit won’t decide on Greece’s next 8 billion-euro ($11 billion) loan installment, leaving that judgment to finance ministers on the basis of a Greek economic assessment due in mid-October.

“We have to talk about the situation, but I don’t expect big decisions from the meeting,” Katainen told reporters in Brussels today. “We have to prepare ourselves for safeguarding the banking sector and ringfencing other countries.”

Drawing lessons from Finland’s rescue of its banking system during the recession of the early 1990s, Katainen said bank- repair work is primarily a national responsibility.

Only when national funding falls short should Europe’s rescue fund step in as a “lender of last resort,” Katainen said. The best use of the soon-to-be-upgraded fund, known as the European Financial Stability Facility, is to offer credit lines to otherwise healthy governments, he said.

Katainen portrayed the expanded EFSF, likely to be operational by mid-month, as an “insurance company” that is not the “first solution” for bolstering national banking systems.

He also called for a stronger role for the Brussels-based European Commission in policing euro-area deficit rules and national competitiveness.

--Editor: Jones Hayden

To contact the reporter on this story: James G. Neuger in Brussels at jneuger@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net


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