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EU agrees to coordinate on bank toxic assets

(Agencies)
Updated: 2009-02-10 22:29

BRUSSELS -- European Union finance ministers agreed Tuesday to coordinate the way they could tackle toxic assets on banks' balance sheets that have frozen lending and aggravated the recession.

European commissioners attend an EU finance ministers meeting in Brussels February 10, 2009. European Union finance ministers agreed Tuesday to coordinate the way they could tackle toxic assets on banks' balance sheets that have frozen lending and aggravated the recession. [Agencies]

They are aiming to stem a possible rash of go-it-alone government moves among the EU's 27 nations, such as Britain's plan to insure the bad assets that have punched huge holes in banks' balance sheets.

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Speaking on condition of anonymity because the agreement is not yet public, diplomats said ministers had agreed "on the need for a coordinated approach to ensure a level playing filed and avoid distortions among banks."

This would set "a correct and consistent approach to valuation" and call on EU regulators to check that any state program would not damage competition by giving some banks an advantage over rivals.

But EU nations are unlikely to pick one option, instead agreeing a range of tools enabling each country to pick the one they like best for its banking sector.

Getting bad assets off banks' hands would theoretically free money for lending and restore the banking sector to some kind of normality because banks would not have to hold back funds to cover massive potential losses.

The US is also planning to buy some of its banks' bad assets, building on last month's move to cover $118 million of Bank of America's toxic investments. Banks gorged on securities backed by risky US mortgages, only to now find that the market for such assets has dried up.

Diplomats said EU ministers wanted to leave some flexibility in what assets each government might guarantee.

Officials say they are looking at several options include setting up a "bad bank" to buy assets dragging down banks' finances, or a government guarantee.

French President Nicolas Sarkozy and German Chancellor Angela Merkel wrote a joint letter Monday to say restoring credit to the economy should be the top priority for the EU, and dealing with problem assets would help restore confidence in the banking sector.

Britain has gone further than other nations in promising to use state money to guarantee toxic assets. Alistair Darling, the British chancellor of the Exchequer, said nations had to "do everything we can to get lending going again."

EU leaders are planning to meet this month to coordinate a patchwork of national stimulus programs that has led to complaints that some governments are moving to protect their industries from rivals.

Swedish Prime Minister Fredrik Reinfeldt said Monday he feared some aid might trigger protectionism. Last week, the Czech Republic criticized Sarkozy for suggesting a French-owned auto factory in the Czech Republic should be making cars in France.

EU regulators have warned France about insisting car makers only receive government help if they buy French car parts or invest in France, a French effort to reverse a trend where car manufacturing jobs have shifted to lower-wage eastern European nations.

The letter from Sarkozy and Merkel also called on the EU to talk about when they should start reducing public debt. Many euro nations are slipping from budget surpluses into shortfalls as the economy contracts, depressing tax revenues and hiking welfare payments.

On Monday, Juncker cautioned that government spending to restore the flow of credit to the economy "could have a very serious impact on public finances."

The EU's top economy official, Joaquin Almunia, said he wanted to see shareholders share some of the burden of bad assets and transparent methods to value the investments.