June 13, 2012
France is pressing the EU to adopt a financial stability package to stem the eurozone crisis, believing negative market reaction to the €100bn bailout of Spain’s banks shows the need for more comprehensive action.
Ahead of the EU summit due on June 28, Paris is set to propose a package of measures to put the European Central Bank in charge of bank supervision and to use the European Stability Mechanism, the new €500bn eurozone rescue fund due to come into force next month, to recapitalise banks directly.
President François Hollande’s new Socialist government has made clear that it regards agreement on urgent moves to tackle the eurozone debt crisis as the top priority.
Germany, however, is opposed to the direct recapitalisation of banks. Officials in Berlin are seeking to play down any sense of urgency before the summit, believing that the tools already in place are adequate.
Under last weekend’s agreement to rescue Spanish banks, aid from the European Financial Stability Facility, the existing rescue fund, and the ESM will be channelled via the Spanish state. Markets reacted badly, unhappy over the convergence of sovereign and banking debt risk and the lack of clarity over the bailout’s terms.
“Look at the reaction to what was done for Spain. It doesn’t fly,” said one official. “We have to have the proper tools to contain contagion.”