David Cameron and Barack Obama urge 'immediate plan' over eurozone crisis


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The Independent Online

Prime Minister David Cameron and US president Barack Obama have agreed on the need for “an immediate plan” to resolve the eurozone crisis, Downing Street said today.

It came in a phone conversation between the two leaders last night, ahead of the crucial G20 summit in Mexico later this month, where world leaders will again attempt to agree a way through the problems.

Chancellor George Osborne also took part in a "stock-taking" conference call with counterparts from the G7.

Meanwhile the Government welcomed new European Commission plans to protect taxpayers and avoid future bank bailouts as a "positive step" towards breaking the "too big to fail" culture of the European banking sector.

The contacts come amid mounting fears over Spain's ability to raise funds on international markets at affordable levels.

Mr Cameron is due to visit Berlin tomorrow, where he is expected to urge German chancellor Angela Merkel to push for tougher fiscal governance in the eurozone.

In last night's phone conversation Mr Cameron and Mr Obama "agreed on the need for an immediate plan to tackle the crisis and to restore market confidence, as well as a longer-term strategy to secure a strong single currency", said Number 10.

The Prime Minister has been making clear for some time that it is for the eurozone countries to take "decisive action" to stand behind their currency, said the spokeswoman.

This should involve building an effective "firewall" to prevent contagion spreading; ensuring banks are well capitalised; creating a system of fiscal burden-sharing; and enacting a supportive monetary policy across the eurozone.

In Brussels today, EU financial services commissioner Michel Barnier announced the latest plan for EU-wide rules to deal with bank failures, which European Commission president Jose Manuel Barroso described as "an essential step towards banking union in the EU".

Under the proposals, European banks would be obliged to draw up recovery plans setting out measures they would take if their financial position weakened.

They would also have to prepare a "resolution plan" with options for dealing with banks "in critical condition which are no longer viable".

Mr Barnier said the plan would help public authorities intervene "decisively" before bank problems arise - and swiftly if they do.

"The financial crisis has cost taxpayers a lot of money," he said.

"Today's proposal is the final measure in fulfilling our G20 commitments for better financial regulation.

"We must equip public authorities so that they can deal adequately with future bank crises - otherwise citizens will be left to pay the bill, while the rescued banks continue as before knowing that they will be bailed out again."

A Downing Street spokeswoman said: "We welcome the announcement today and the proposals. The UK Government's view is it represents a positive step in tackling the problem of 'too big to fail' in the banking sector."

But Liberal Democrat MEP Sharon Bowles said the resolution plan - not likely to come into force for years even after approval by EU governments - is likely to be overtaken by events.

"In both comedy and tragedy, timing is everything," she said.

"The proposal we have today may be useful for the future but it does not solve the current problems we face, and frankly should not be held as such. In the long term, I have no doubt that we will want to build an effective and strong crisis resolution scheme within a pan-European framework."

The short term requires measures to force banks to develop "living wills" and making the European Banking Authority more effective, she said.

"The European Parliament wants to embed such requirements in the capital requirements legislation on the table," said Ms Bowles.

"We cannot wait an extra two and a half years for the crisis management legislation to be negotiated and implemented - its implementation date is January 2015."

The crisis management plan highlights the fact that public authorities are badly equipped to deal with ailing banks.

Governments have so far injected "unprecedented" levels of public money into banks - the European Commission approved 4.5 trillion euros of state aid - 37% of EU GDP - between October 2008 and October 2011.

A commission statement said: "This averted massive banking failure and economic disruption, but has burdened taxpayers with deteriorating public finances and failed to settle the question of how to deal with large cross-border banks in trouble."

Mr Barroso said: "Two weeks ahead of the (G20) summit in Los Cabos, the commission is presenting a proposal which will help protect our taxpayers and economies from the impact of any future bank failure.

"Today's proposal is an essential step towards banking union in the EU and will make the banking sector more responsible. This will contribute to stability and confidence in the EU in the future, as we work to strengthen and further integrate our interdependent economies."