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No rush

January 18, 2011

European finance ministers have said they will take their time over enlarging the eurozone's rescue fund. They also agreed to carry out more rigorous stress tests on banks this year, to avoid further bailouts.

A bag with a euro sign
The European Financial Stability Fund was set up after the Greek bailoutImage: AP

EU finance ministers said Tuesday they will take their time over enlarging the eurozone's rescue fund. At the end of a 2-day meeting in Brussels, the ministers came to no agreement on ways to strengthen the currency's financial stability.

Eurogroup chairman Jean-Claude Juncker said they discussed many options, but favored none. The major stumbling block is whether to increase the size of the fund - an option both France and Germany oppose.

German Finance Minister Wolfgang Schäuble said that with markets calmer there was no rush to boost the 440-billion-euro ($590 billion) rescue fund; the European Financial Stability Facility (EFSF). Schäuble said the EU was looking to put together a comprehensive package of reforms to be adopted by EU leaders in late March, so that the bloc doesn’t have to keep reacting every few months to a new crisis.

"We want to bring about a comprehensive package and this naturally means, beyond short-term measures, an improvement of the Stability and Growth pact and economic coordination," he told reporters.

However the approach could test the patience of investors, who are spooked by the eurozone debt crisis. They were selling off peripheral countries' bonds this month, until the European Central Bank intervened to steady markets.

Elena Salgado, Wolfgang Schäuble and Didier Reynders
Wolfgang Schäuble (center) discussed options with his colleaguesImage: AP

Stress tests

The EU ministers also announced they would launch new transparent, uniform stress tests on banks that would aim to check liquidity levels and avoid bailouts.

EU Financial Services Commissioner Michel Barnier said the tests, which are being designed by the European Central Bank and the new European Banking Authority would also assess the risk of exposure to sovereign debt losses.

The tests are set to begin in the spring with results to be published later this year, an EU official said.

The stress tests would be accompanied by remedial action for banks that fail to meet levels of capital or other safety yardsticks, although it was not spelt out how that would be done.

The stringency of previous tests was heavily criticized when Bank of Ireland and other Irish Banks had to be bailed out only a few months after having passed the EU tests.

Of 91 European banks tested in July last year, only seven - five in Spain, one in Germany and one in Greece - were found to be vulnerable.

"We are going to draw the lessons by making the next tests more rigorous and even more credible," Barnier said at the close of two days of talks between EU finance ministers and permanent officials in Brussels.

The EU still has to work out appropriate method for testing banks in which positions can change by billions in the space of a second.

Author: Joanna Impey (AFP, dpa, Reuters)
Editor: Rob Turner

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