Eurozone members agree bank bail-out guidelines

Finance ministers from the fifteen eurozone countries yesterday (6 October) agreed guidelines to help European banks, as more countries followed in the footsteps of Ireland and Germany by rushing to ailing financial institutions’ rescue.

Only major European banks will be bailed-out, according to the guidelines agreed by eurozone ministers during a meeting in Luxembourg on 6 October. 

The agreement came as several countries yesterday mirrored Germany’s decision to give state guarantees to all private saving accounts, ruling out a concerted Europe-wide solution for now.

Austria, Denmark, and Sweden followed Germany, while several other countries indicated that they had similar plans in the pipeline. 

In the UK, the government raised the upper guarantee level for private savings to €64,000, a step that Prime Minister Gordon Brown said had become necessary because of “extraordinary times”. 

Spain and Italy indicated they would follow suit, reversing their previous position that a European solution needed to be found. “It will be like dominos,” one Spanish official told the Financial Times. “Now everyone will have to do it.”

José Manuel Barroso, the President of the European Commission, recognised that national situations varied and that it was too early for a harmonised European approach. “We are a Union of states, not one single state,” Barroso said. 

“Therefore each and everybody has to act at his or her level, with his or her instruments. I recognise that the cases may vary and that there are different national contexts. As a consequence, there cannot be uniform responses.”

No European bail-out fund

A European bail-out fund, proposed last week by the Danish and French governments, seems to be off the cards, although Italy is expected to raise the idea again when the non-Euro group members meet their EU colleagues today.

“All European leaders will take every necessary step to maintain the stability of the financial system, through liquidity injections, specific actions on individual banks, or reinforcing the protection scheme for depositors,” Berlusconi said ahead of a meeting with Germany’s Chancellor Angela Merkel.

The European shuttle diplomay is likely to intensify ahead of the EU summit on 14-15 October, as Spain’s Zapatero is set to meet on Friday with French President Nicolas Sarkozy, whose country currently holds the EU Presidency. 

Meanwhile, European stocks along with the euro continued their downturn, with the German stock exchange suffering a 7% blow and the European currency reaching a 14-month low to the dollar. 

Remarks by German Finance Minister Peer Steinbrück that his country was working on a ‘Plan B’ for national banks sent out another worrying signal to its European neighbours. “We must try […] to erect a shield so that we stop stumbling from one [bank crisis] case into the next,” he said. 

Solvency II 

EU finance ministers are also set to debate Solvency II, a proposal which would harmonise the way cross-border insurance groups are monitored. In view of the current financial crisis, Brussels is pushing for a quick deal to struck on what is already on the table, while a number of issues remain disputed, with supervisors warning of the risks of the reform and the industry pressing for wider changes. 

For the moment, an EU-wide agreement seems unlikely due to different views on the issue of group supervisison. A group of 12 countries with a smaller insurance industry, notably Eastern European member states and Spain, fear that the reform of the insurance sector focuses too much on the interests of big companies. 

The European Parliament’s economic affairs committee is set to vote on the draft directive today, followed by a vote in plenary in November. 

Reduced VAT rate

Ministers will also debate measures against tax fraud and reduced VAT rates for labour-intensive services, such as catering. The French EU Presidency considers the latter key to boosting the competitiveness of small businesses (see Links Dossier), but countries such as Germany remain opposed to the measure, questioning its positive effect. 

Read more with Euractiv

EU leaders remain split on bail-out

Meeting in Paris on Saturday (4 October), the leaders of France, Germany, Britain and Italy called for closer coordination between governments when bailing out banks. But they failed to forge a real common EU response to the financial turmoil.