This article is from the source 'nytimes' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at http://www.nytimes.com/2012/10/20/business/global/germany-spoils-party-with-refusal-on-bank-aid.html

The article has changed 2 times. There is an RSS feed of changes available.

Version 0 Version 1
Germany Spoils Party With Refusal on Bank Aid German Refusal on Bank Aid Mars End of Europe Summit
(about 2 hours later)
BRUSSELS — Chancellor Angela Merkel of Germany dampened expectations on Friday that Irish and Spanish banks hobbled by the financial crisis could receive direct injections of aid from a newly established European bailout fund. BRUSSELS — Chancellor Angela Merkel of Germany damped expectations on Friday that Irish and Spanish banks hobbled by the financial crisis would receive direct aid from a newly established European bailout fund.
If her view prevails, and Germany’s often does, that means European rescue loans for the troubled banks, at least in the near term, would be carried on the books of the governments in Madrid and Dublin, adding to their debt burdens. The Spanish prime minister, Mariano Rajoy, has been particularly intent on avoiding that burden. If her view prevails, and Germany’s often does, European rescue loans for the troubled banks, at least in the near term, would be carried on the books of the governments in Dublin and Madrid, adding to their debt burdens. The Spanish prime minister, Mariano Rajoy, has been particularly intent on avoiding that burden.
But Ms. Merkel’s comments here Friday, at the conclusion of a two-day summit meeting of E.U. leaders, made clear that Germany was among the euro zone countries not willing to let bailout money flow directly to troubled banks any time soon. And even if Germany should consent someday, the money from the bailout fund would be meant to solve the banks’ future problems — not to clean up currently existing messes. But Ms. Merkel’s comments here on Friday, at the conclusion of a two-day summit meeting of European leaders, made it clear that Germany was among the countries not willing to let bailout money flow directly to troubled banks any time soon. And even if it consented someday, the money would be meant to solve the banks’ future problems, not to clean up existing messes.
“If recapitalization is possible, it will only be possible for the future,” Ms. Merkel said at a news conference.“If recapitalization is possible, it will only be possible for the future,” Ms. Merkel said at a news conference.
Spanish and Irish hopes had been buoyed back in late June, at the previous E.U. summit meeting, when the bloc’s leaders agreed on a way that direct aid to banks might be able to flow from the new bailout fund, the European Stability Mechanism. The condition: first, a central regulator for euro zone banks would need to be put in place under the aegis of the European Central Bank. Spanish and Irish hopes had been buoyed at a summit meeting in June, when the bloc’s leaders agreed on a way that direct aid to banks might be able to flow from the new bailout fund, the European Stability Mechanism. The condition was that a central regulator for euro zone banks first be put in place under the aegis of the European Central Bank.
But market pressures have eased significantly since June, and with it the sense of crisis. And Germany, backed by Finland and the Netherlands, has been urging a more carefully considered approach to centralized banking regulation for the region. On Friday, Ms. Merkel said preparations to set up the single banking supervisor for Europe would probably take until 2014. But market pressures have eased significantly since June, and with them the sense of crisis. And Germany, backed by Finland and the Netherlands, has been urging a more carefully considered approach to centralized banking regulation for the region.
And by then, she said, “when the banking supervisor is in place we won’t have any more problems with the Spanish banks — at least I hope not.” On Friday, Ms. Merkel said preparations to set up the single banking supervisor would probably take until 2014. But by then, she said, “we won’t have any more problems with the Spanish banks — at least, I hope not.”
Her comments would not affect the availability of the special emergency pool of up to €100 billion, or $130 billion, that euro zone finance ministers have pledged for shoring up Spain’s banking industry. The Spanish government recently indicated that it might seek up to €40 billion for that purpose. But until the summit this week, Spain had been harboring hopes that its banks — and not the government — would bear the burden of carrying those loans on their books and be responsible for repaying them. Her comments would not affect the availability of an emergency pool of up to 100 billion euros, or $131 billion, that euro zone finance ministers have pledged for shoring up Spain’s banking industry. The Spanish government recently indicated that it might seek up to 40 billion euros for that purpose. But until this week’s meeting, Spain had hoped its banks, and not the government, would carry those loans on their books and be responsible for repaying them.
Now, if Mr. Rajoy wants to enlist that aid, it appears he will need to be willing to add it to Madrid’s debt load. Now, if Mr. Rajoy wants to enlist that aid, it seems he will have to add it to Madrid’s debt load.
Germany is the biggest contributor to the permanent bailout fund, the E.S.M., and Ms. Merkel faced the unwelcome prospect of having to dip into that pot of money to support shaky Spanish banks before national elections in Germany in September 2013. Such aid could be an election issue because German citizens have grown weary of paying most of the bill for bailouts, and they are wary of using more funds to help Spanish banks. Germany is the biggest contributor to the permanent bailout fund, and Ms. Merkel faced the unwelcome prospect of dipping into that pot before national elections in Germany in September 2013. Such aid could be an election issue because German citizens have grown weary of paying most of the bill for bailouts, and they are wary of using more money to help Spanish banks.
In the news conference, Ms. Merkel denied that one of her goals at the meeting had been to block the prospect of any new German-financed bailouts before the elections next year. But she acknowledged that it would be hard to erase that perception. At the news conference, Ms. Merkel denied that one of her goals at the meeting had been to block the prospect of any new German-financed bailouts before the elections next year. But she acknowledged that it would be hard to erase that perception.
“No matter what I’m going to say it will probably not be the right answer by your standards,” Ms. Merkel said in response to a question about the political implications of her stance. But “I haven’t even thought about this,” she insisted. “No matter what I’m going to say, it will probably not be the right answer by your standards,” Ms. Merkel said in response to a question about the political implications of her stance, but “I haven’t even thought about this.”
On Thursday night, E.U. leaders had agreed that the legislation to put in place a more unified banking system should be completed by the end of the year. But they tweaked language in their final report to make it clear that they did not expect the new system to enter into force by January 1. On Thursday night, European leaders had agreed that the legislation to establish a more unified banking system should be completed by the end of the year. But they tweaked language in their final report to make it clear that they did not expect the new system to enter into force by Jan. 1.
The leaders left it to finance ministers “to agree on the practical details, and the discussions will likely be complicated and delayed,” Philippe Gudin, an economist at Barclays, wrote in a briefing note on Friday.The leaders left it to finance ministers “to agree on the practical details, and the discussions will likely be complicated and delayed,” Philippe Gudin, an economist at Barclays, wrote in a briefing note on Friday.
The French government and the E.U.'s administrative arm, the European Commission, had sought to hasten the legislation in order to let direct aid begin flowing to some of the euro zone’s most vulnerable banks on January 1. The French government and the European Union’s administrative arm, the European Commission, had sought to hasten the legislation to let direct aid go to some of the euro zone’s most vulnerable banks starting Jan. 1.
But François Hollande, the French president, in comments early Friday after a late-night session, was unable to give a date for the start of the system and instead said markets should take comfort that direct recapitalization of banks still should be able to go forward over the course of 2013. But in comments early Friday after a late-night session, François Hollande, the French president, was unable to give a date for the start of the system and instead said the markets should take comfort that direct recapitalization of banks should still be able to go forward over the course of 2013.
Mr. Rajoy, the Spanish prime minster, said after the summit meeting that he remained convinced that direct recapitalization of his country’s banks could take place once the supervision was in place. But he said Spain’s finances still would be manageable even if that option was not available. Mr. Rajoy, the Spanish prime minster, said after the summit meeting that he remained convinced that direct recapitalization of his country’s banks would be possible once the supervision was in place. But he said Spain’s finances would be manageable even without that option.
Enda Kenny, the Irish prime minister, said Friday that the details of how direct recapitalization would be worked out by finance ministers. Enda Kenny, the Irish prime minister, said finance ministers would determine exactly how direct recapitalization would work.
When agreed to in principle back in June, the creation of a single banking regulator for the euro area was supposed to be a relatively straightforward matter. But since then, Germany has balked at proposals by the European Commission and France to put all 6,000 lenders in euro zone countries under the direct supervision of the regulator. When agreed to in principle in June, the creation of a banking regulator for the euro area was supposed to be relatively simple. But Germany has since balked at proposals by the European Commission and France to put all 6,000 euro zone lenders under the direct supervision of the regulator.
Before any changes occur, the government in Berlin wants to ensure that the E.C.B. has capacity to do that job, while some German regional leaders are opposed to greater scrutiny of state and local banks by the E.C.B. Before any changes occur, the government in Berlin wants to ensure that the central bank has the capacity to do that job, while some German regional leaders oppose greater scrutiny of state and local banks by the central bank.