EU nations want to recapitalise crisis banks

BRUSSELS: EU nations are building a "co-ordinated" plan to recapitalise banks to avoid contagion from the debt crisis which has forced the dismantling of Franco-Belgian bank Dexia, the European Commission said Tuesday.

"There is an increasingly shared view that we need a concerted, co-ordinated approach in Europe while many of the elements are done in the member states", the EU's Economic Affairs Commissioner Olli Rehn told the Financial Times.

"There is a sense of urgency among ministers and we need to move on," he added.

"Capital positions of European banks must be reinforced to provide additional safety margins and thus reduce uncertainty", Rehn said in comments run on the British newspaper's website.

That uncertainty was evident Tuesday as panicky selling driven by the Greek debt impasse and a troubled European bank swept the markets.

Investors dumped shares in Dexia as news of its break-up emerged.

Brussels is strongly in favour of recapitalising its banks to shore them up against exposure to bad debts, not least given the financial "haircut" they are set to take on Greek sovereign bonds.

The offensive was not popular in all European capitals, including Paris which believes that alarm bells emanating from the European Union executive only contribute to the turbulence.

But it is clear that Greece's problems are moving the banking sector towards a fresh crisis, with their share prices on the way down since summer.

The sector has been at the heart of the turbulence on the markets and the eurozone debt crisis.

Many economic officials, including IMF head Christine Lagarde, have already called for a recapitalisation of some European banks.

European finance ministers met in Luxembourg on Monday and Tuesday to try to advance a solution for eurozone member Greece, which faces default despite EU-IMF bailout loans.

EU officials demanded Greece make more sacrifices and warned banks may have to shoulder more losses as part of the resolution of the debt crisis.

France and Belgium were forced to intervene during the day to guarantee the financing of troubled cross-border bank Dexia as its shares plunged spectacularly ahead of confirmation that it is to be broken up.

Copyright AFP (Agence France-Presse), 2011