Recapitalizing banks directly from Europe’s rescue fund can be a “good” tool if used on a case-by-case basis with firm rules, Finnish Prime Minister Jyrki Katainen said.
“In some cases the direct recapitalization vehicle is a good and well-functioning instrument,” Katainen told reporters in Helsinki today. “We need a very clear rule base for this before starting using it.”
The comments signal an easing stance by the northernmost member of the single currency to using rescue funds to help faltering lenders build up buffers. Finland, the euro area’s top-rated nation, has backed Germany in resisting joint liability and pursued a strict stance toward bailouts for five countries over the past three years.
The euro area’s 17 member governments have agreed that using the European Stability Mechanism to recapitalize banks requires the creation of a single bank supervisor, slated for next year.
“It will take some time to use this direct capitalization, maybe a year or so,” Katainen said.
Even so, using the ESM for legacy assets, or debt guaranteed by governments such as Spain or Ireland during the crisis, risks depleting its funds, Katainen said. He ruled out new funds for the rescue mechanism.
“We don’t know exactly how much money would be needed if all the legacy assets should be financed through the ESM and how much money would be left in the ESM after recapitalizing all the European banks who need capital from public sources,” he said. “After a while we would be in a situation in which the ESM is empty and then we would be in the middle of speculation of whether Europe is credible enough to tackle new crises.”
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