Wall Street Journal
November 29, 2011
European Union finance ministers at a meeting on Wednesday are set to reject calls for a pan-European system of bank-debt guarantees and instead are expected to back a plan for national governments to provide the guarantees.
But EU officials and banking experts doubt such a plan will address the root problem: Banks based in the bloc's troubled regions—the euro-zone periphery and Eastern Europe—won't benefit from guarantees from governments that are themselves facing grave funding problems. And with bond yields rising even in the euro-zone core, bank guarantees provided by these governments could inflame the fears now roiling euro-zone sovereign-bond markets.
"Given that so many sovereigns are themselves unable to borrow at sustainable rates, this national approach will not work at this time," said a letter sent to finance ministers on Monday by seven members of the Banking Stakeholder Group, an advisory panel to the European Banking Authority. "This is why we call on the [finance ministers]…to urgently adopt pan-EU measures to providing capital and term funding backstops for banks in all member states."