ECB rules out US-style large-scale bailouts

The European Central Bank (ECB) yesterday (22 September) moved to appease tensions in European money markets with a cash injection of $40 billion (€27.6 billion), but ruled out any US-style, large-scale bailout operations.

The ECB and the Commission welcomed a massive $700 billion US government rescue plan announced at the weekend to buy back some of the “toxic” mortgage-related assets owned by banks and which caused the collapse of the financial system. European banks with “significant operations” in the US will also be eligible for the plan. 

“The announcement of the initiative was very positive,” said EU Economic and Monetary Affairs Commissioner Joaquín Almunia. 

The American plans also contained an invitation by US Treasury Secretary Henry Paulson to other countries to join the bailout and come up with similar financing measures to help out banks. But the Commission said it was up to individual governments to respond. 

In an interview with Euronews, ECB chief Jean-Claude Trichet also stressed that it was not the role of central banks to rush to the rescue of commercial banks: “We have a responsibility as regards the provision of liquidity, we have no responsibility as regards the solvency issue that might emerge here and there. So, this is clear: we have to face up to all our responsibilities and, like other central banks all over the world, the liquidity responsibility is ours. The solvency responsibility is the responsibility of the executive branches.” 

Similarly, Germany has ruled out any major rescue plans, saying the European financial sector was sound enough not to need one. “Measures like those in the United States are not necessary here […] Germany has been much less affected,” said a spokesman for German Chancellor Angela Merkel. 

German Finance Minister Peer Steinbrück also announced that “none of the other six G7 members [UK, Germany, France, Italy, Japan and Canada] will adopt a similar program to the US,” following a conference call between the G7 finance ministers. 

Onlookers say the refusal stems from a lack of sympathy for a crisis foreigners consider to have been created by American banks and regulators, as well as from restrictions in Europe due to strict EU rules limiting budget deficits and public debt. 

Nevertheless, while ruling out the creation of government funds to buy bad assets, Britain and Germany are leading the drive for tougher regulation of the international financial sector. 

UK Chancellor of the Exchequer Alistair Darling announced that Britain would introduce legislation to reform the UK banking sector within the next two weeks in a bid to limit the impact of the current fallout on its vast financial services sector. “We are putting in place both here in the UK and internationally the tougher financial regulation no one can doubt we need,” he said. 

Darling said the new bill would involve strengthening banking supervision, giving new powers to regulators and making it easier to intervene if a bank gets into trouble. 

For its part, the European Commission is preparing a change to existing rules on bank capital requirements and credit rating agencies (EURACTIV 31/07/08). But both will need to be approved by member states and the European Parliament before becoming effective. 

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