Weak European lenders should be barred from paying dividends and bonuses until they move to strengthen their capital buffers, the European Commission's president said yesterday, as he stepped up pressure for co-ordinated action to shore up the banking system ahead of a summit of eurozone leaders this month.
Jose Manuel Barroso told the European Parliament that despite "billions of euros in aid and guarantees" since the financial crisis, lenders remained under pressure because of the sovereign debt crisis. Echoing earlier comments, he argued that strengthening the banking system was therefore a key step in restoring stability in the embattled eurozone.
To this end, he said the European Banking Authority – charged with formulating stress tests for the sector – should examine the sovereign debt exposure of potentially systemic banks. He suggested the process should involve temporarily higher capital ratios to reflect the exposures. "Banks that do have the required capital should present and then implement plans to have it in place as swiftly as possible. And until they have done so they should be prevented from paying out dividends and bonuses by national supervisors," he said.
Mr Barroso added that "banks should use private sources of capital first" and drawing on the European Union's bailout fund should be "a last resort". But analysts said the proposals – part of what he called a five-step roadmap to stability and growth in the eurozone – lacked detail. "It doesn't sound like anything all... it's a pretty vague statement to recapitalise the banks," Marcel Alexandrovich, senior vice-president and European financial economist at Jefferies, said.
Stephen Lewis, the chief economist atMonument Securities, agreed, saying the issues had to be decided by German and French governments, not EC officials. "What Barroso has been doing is making statements which make him appear to be part of this loop," he said.
The politics appeared to be moving on even before Mr Barroso stood up in the European Parliament. Earlier, the French government said it would not use the European Financial Stability Facility to recapitalise its banks and would be able to bolster its banks with public money if needed. The statement marked a change from earlier signs that France wanted to draw upon the EFSF instead of using its own resources – a move opposed by Germany, which wants the facility to be used only as a last resort.
"Once the July 21 agreement [to expand the EFSF] is approved, the fund can be used to recapitalise the banks but France will not make use of the EFSF," a French Government spokeswoman, Valerie Pecresse, said.
She also acknowledged the need for coordinated action to strengthen banks across Europe and defended "the solidity" of French lenders.
Slovakia parties set to ratify euro bailout fund
Slovakia's main opposition party, Smer, confirmed yesterday that the country will ratify the expansion of the powers of the European Financial Stability Facility (EFSF) by the end of this week.
On Tuesday night the parliament in Bratislava rejected legislation to approve the facility's extension after a rebellion by one of the coalition partners of Iveta Radicova's government.
But parties representing a majority of Slovak MPs agreed yesterday to a fresh vote and committed to back the legislation.
Mikulas Dzurinda, Ms Radicova's foreign minister, said parliament would today vote for new elections and then stage another vote on the EFSF. "We decided that as the first point of [today's] parliamentary session, we will work on a proposal to shorten the voting period, with the goal of organising an election on 10 March," he said. "Immediately after, tomorrow or Friday, we will debate proposals related to the EFSF."
The €440bn (£385bn) European stabilisation fund cannot exercise its new powers – which include buying up the government bonds of distressed eurozone member states and recapitalising banks – until it is ratified by all 17 eurozone parliaments.
Slovakia, whose 5.4 million people make up less than 2 per cent of the currency bloc's population, is the only member that has not yet ratified the plan to increase the EFSF's powers.
The next vote is expected to be won because the main socialist opposition, Smer, backs the extension of the facility's powers, despite abstaining on Tuesday .
Smer's leader, Robert Fico, said in the first debate: "We're saying 'no' to a rightist government but 'yes' to the rescue fund."
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