Eurozone finance ministers on Monday held difficult talks in Brussels on how to rid their banks of toxic assets in a way that is both affordable and fair.
Toxic assets are weighing down Europe's banks
Ministers from the 16 countries that share the euro debated on Monday a set of proposals put forward by the European Union's executive, the European Commission, and the European Central Bank (ECB).
Noting that financial markets remain "vulnerable" and "fragile," Luxembourg Prime Minister and Finance Minister Jean-Claude Juncker, who chairs the monthly eurozone meetings, said governments would need to ensure that the measures adopted do not result in a bank enjoying an unfair advantage over its European competitors.
Another obstacle to an agreement involves estimating exactly how much taxpayer money would be needed to detox the banks, given the difficulties involved in correctly pricing their dodgy assets.
"In some countries, for certain banks, and for specific reasons, the right sort of treatment of toxic assets can help create stability," Juncker said.
At the same time, we are "very aware of the fact that the way we deal with this could have a very serious impact on public finances," Juncker said.
Almunia insists on the respect of the EU's rules
Joaquin Almunia, the EU's economic and monetary affairs commissioner, said that since the bloc would not enjoy a "one-size-fits-all" solution, the commission would have to ensure a level playing field and the full respect of the EU's strict rules on what kind of state aid is and is not allowed.
Almunia said assets would have to be priced in a transparent and independent manner; there should be "equal treatment", regardless of the pricing technique that is used; and there should be an adequate sharing of the burden between the various stakeholders involved.
Juncker said he hoped an agreement would be found on Tuesday, when the talks were to be extended to finance ministers of all 27 EU countries.
"For some banks, it is vital that we quickly find a way to deal with toxic assets," Juncker said.
Pushing for flexibility
Juncker wants quick action
While German Finance Minister Peer Steinbrueck is pushing for "flexibility," Britain is already working on its own plan to insure such assets using public money. The British proposal received a lukewarm reception from fellow EU finance ministers when it was presented in Brussels last month.
Monday's talks took place amid the growing realization that the financial crisis is far from over. Highlighting the difficulties facing the EU, the discussions featured a rare appearance from European Commission President Jose Manuel Barroso, who flanked regular attendees such as Almunia and ECB President Jean-Claude Trichet.
Earlier in the day, French President Nicolas Sarkozy and German Chancellor Angela Merkel asked the Czech presidency of the EU to call an emergency summit on the crisis, to be held at the end of the month.
The meeting, which is intended to prepare the groundwork for the EU's regular March summit, will likely assess responses to the financial crisis, as well as a proposed European-wide 200-billion-euro ($257-billion) economic stimulus package.
Disagreements within the 16-strong eurozone also remain over the creation of a euro bond market to finance the member states' rapidly increasing budget deficits.
On Feb. 18, the European Commission is expected to formalize infringement procedures against six more EU countries whose deficits exceeded the agreed limit of 3 percent of gross domestic product in 2008.
Four of these -- France, Spain, Greece and Ireland -- share the common European currency, while non-eurozone members Britain, Romania, Hungary and Latvia also face excessive deficit procedures.
Dutch Finance Minister Wouter Bos, whose country has traditionally defended fiscal prudence, said he was open to the idea of allowing countries more time to reduce their deficits.
"Everybody agrees that the countries that go above the (3-percent) ceiling should be granted a bit more time to get back to sustainable government finances," Bos said.
At the same time, "we should avoid sending out the wrong incentives, for example, by giving countries that have huge deficits a long time to return to sustainable finances," Bos said.