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Last Updated: Oct 28th, 2008 - 17:57:18 |
EUOBSERVER / BRUSSELS - The 27 EU leaders have vowed to "take all measures necessary" to ensure the stability of the ailing financial system.
According to a statement issued by EU French presidency on Monday evening (6 October), EU governments will not hesitate - if needed - to inject liquidity from central banks, to adopt measures targeted at certain banks or to enhance deposit guarantees.
"No depositor in the banks of our countries has suffered losses and we will continue to take the necessary measures to protect the system and depositors," reads the political declaration on behalf of all European leaders.
In addition, they once again pledged "close co-ordination and co-operation" as they deal with the domestic effects of the ongoing crisis.
However, thus far, the words of solidarity have yet to be translated into deeds.
The Irish government was the first to take concrete steps towards blanket guarantees last week. Since then, Greece, Germany, Austria, Denmark, Sweden and the UK have all acted unilaterally in also promising full or significantly higher deposit guarantees.
EU solution
"My preference would be by far an EU solution," EU competition commission Neelie Kroes told the European Parliament on Monday (6 October).
"That would be the best way to co-ordinate national actions and maximize their effectiveness, and at the same time, secure that negative spill-overs into other financial institutions and member states are limited."
According to Ms Kroes, it is "the very large scope" of the Irish guarantee and its discriminatory potential that have raised concerns - the scheme covers not only existing deposits and credit, but also all future credit to all six Irish banks.
"I'm confident with some fine tuning, the Irish guarantee scheme could be put in line with EU law," the commissioner concluded.
In general, the EU's fair competition watchdog took a softer stance towards other full bank deposit guarantees.
"The current financial crisis poses a systemic threat to EU banking sector ... and in this systematic context, general guarantees, protecting retail deposits and bank debts held by retail clients can be a legitimate component of the public policy response," she said.
Future clarity
The commission announced it would provide EU governments with "clarity and legal certainty" on the matter over the next few days.
According to Zsolt Darvas from the Brussels-based centrist think-tank Bruegel, the full guarantee should be only temporary solution.
"There is a fear that households will go to banks, take out their money and the bank will face not only liquidity, but also solvency problems," Mr Darvas said, adding that guaranteeing deposits could be a good solution because it could comfort bank clients.
"But in a long run, the authorities should develop regulations that would prevent such situations as we are facing now from happening again," the analyst concluded.
The issue - including amounts of guarantee and an impact on other EU states - will be debated on Tuesday (7 October) by all 27 EU finance ministers, EU economic and monetary affairs commissioner Joaquin Almunia said.
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