France FinMin: Oct 23 EU Summit Result Will Be ‘Decisive’

Author: Market News International | Category: News

PARIS (MNI) – The results of the EU leaders summit to be held on
Oct. 23 will be “decisive” for resolution of the European debt crisis,
French Finance Minister, Francois Baroin, said following the meeting of
the Group of 20 finance ministers and central bankers here.

European officials told the G20 that they had agreed to enhance the
status of the Financial Stability Board to include more “executive
power,” Baroin said.

“We want to promote the institutionalization of the FSB and also
want to set up a strong legal basis,” he said.

The world’s leading economies put pressure on the EU to end the
crisis of confidence in some of its members’ government debt, which
after two years shows no sign of containment. Greece and Portugal, both
recipients of a bailout package from the EU and IMF, are still
struggling to bring their fiscal balances under control, while Spain,
the fourth largest economy using the euro, is also having troubles
meeting targets it has set for itself.

The G20 finance chiefs said that boosting the firepower of the
Eurozone’s bailout fund was essential for the currency bloc to master
its debt crisis. “We look forward to further work to maximize the impact
of the EFSF in order to avoid contagion, and to the outcome of the
European Council on October 23 to decisively address the current
challenges through a comprehensive plan,” they said in their statement.

“We have to stress that the 23 October EU Summit result will be
decisive,” said French Finance Minister Francois Baroin. The US’s fiscal
policies and “China’s commitment to balance its growth drivers” would
also be decisive in order to sustain financial stability, he said.

How E440 billion EFSF will be enhanced, however, is still unclear.
EU officials are now talking up a scheme that would allow the fund to
insure investors against a certain amount of losses, possibly 20
percent, which could boost the fund’s impact to about E2 trillion.

Although France and Germany, the Eurozone’s two main pillars, have
proclaimed agreement on everything, France had, in the run up to the
meeting in Paris, pushed for a scheme that would boost the EFSF’s
firepower by turning the fund into a bank with access to ECB funds, a
proposal which the central bank and Germany fiercely oppose.

ECB Governing Council member and Bank of France Governor Christian
Noyer said that EU leaders would come up with a response to the “Greek
problem and the EFSF” at the EU summit and would also present the core
tier one requirement that EU banks would need to meet and a “timetable
to be coordinated at the EU level for the recapitalisation of banks.”

The G20 finance chiefs appeared split on an expansion of the fund’s
resources, agreeing only to discuss the issue further at the G20 leaders
summit next month. “We committed that the IMF must have adequate
resources to fulfill its systemic responsibilities and look forward to a
discussion of this in Cannes,”

US Treasury Secretary Timothy Geithner suggested that a greater
role for the IMF could be useful as a way of exerting more forceful
pressure on the EU to douse the spread of the sovereign debt crisis but
disagreed with calls from leading emerging economies including China and
Brazil for the institution’s resources to be boosted, saying that “the
IMF has very substantial uncommitted resources.”

Germany, Canada, Australia, Japan and the UK, have also downplayed
the idea, saying that Europe could take care of itself.

The IMF has been looking for ways to further assist Europe in
restoring market confidence, suggesting in Brussels last week that it
would be prepared to help Eurozone countries leverage their bailout fund
through co-financing bond purchases, but the institution’s Managing
Director, Christine Lagarde, has also warned that the IMF could find
itself short of funds should the sovereign debt crisis worsen.

Saturday’s communique also called on the IMF to “further consider
new ways to provide on a case by case basis short-term liquidity to
countries facing exogenous, including systemic, shocks building on
existing instruments and facilities and called on the IMF to develop
concrete proposals by the Cannes summit.”

G20 finance chiefs also said they would prepare a list of
“systemically important financial institutions” that would be subject to
additional capital requirements and announced measures to increase the
transparency of commodity derivatives markets.

–Brussels Bureau, +324-952-28374; pkoh@marketnews.com

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