Thursday, January 17, 2013

Obstacles Arise for Euro-Zone Bank Plan

Wall Street Journal
January 16, 2013

A centerpiece plan in Europe's bid to ease its financial crisis, widely credited with calming markets when it was unveiled last year, is under pressure as euro-zone officials spar over how to implement it.

As senior euro-zone finance-ministry officials met this week in Brussels, technical complications and second thoughts from some governments threatened to undermine commitments from euro-zone leaders to take pressure off indebted governments by allowing their bailout fund to directly capitalize banks in these countries.

However, direct injections into weak banks would deplete the euro-zone bailout fund's lending capacity much faster than would extending loans to governments, the fund's usual role, the head of the bloc's bailout fund said in meetings this week, according to two euro-zone officials.

At the same time, some governments are seeking ways to limit the fund's risks. Rich countries, including Germany, are insisting that governments should remain responsible for at least some of the direct aid to their banks so that they cover any initial losses made by the investments.


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