Wednesday, November 30, 2011

Finance Ministers Agree to EU Debt Guarantees

Wall Street Journal
November 30, 2011

European Union finance ministers settled on a plan Wednesday aimed at thawing Europe's frozen wholesale lending market, agreeing that national goverments would work in concert to offer guarantees backing the bonds issued by each nation's banks.

But the officials rejected a more ambitions plan that would have created a single "syndicate" in which the 27-nation bloc would jointly issue guarantees to ease European banks' funding troubles. That rejected proposal had been supported by the European Central Bank and other EU institutions.

Guarantees act as insurance policies that banks can buy to protect holders of their debt against default. Governments are eager to get a guarantee program up and running to help banks raise unsecured, long-term funding—a market that has been effectively closed to them for months as global financial institutions have grown increasingly wary of purchasing bonds issued by troubled euro-zone banks.

The creation of a syndicate would face large technical and political obstacles that would delay its coming into force, officials said. Moreover, most creditworthy governments have opposed joint guarantees, fearing the plan could undermine their own credit ratings.


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