Berlin: German Chancellor Angela Merkel said Europe's banks should look first to raise money in the private sector before turning to governments to bolster their financial cushions against potential losses from the continent's sovereign debt crisis.
An upcoming summit of the bloc's 27 leaders should send a "signal" regarding a coordinated recapitalisation of Europe's banking sector to ensure the "real economy keeps functioning", Merkel said yesterday at the chancellery in Berlin, speaking alongside visiting Dutch Premier Mark Rutte.
Speculation that Europe is looking at a coordinated plan to put more money into its shaky banking sector to withstand a possible government bond default by Greece has helped stock markets rally over the past couple of days, following a dismal start to the week.
Merkel said a recapitalisation, if necessary, will have to follow a clear "hierarchy", with banks being pushed first to seek fresh private investment. Governments, would have to rely on their own resources before turning to the Eurozone's bailout fund, the European Financial Stability Facility (EFSF).
"First the banks have to try themselves to get capital. If that approach fails, then the member states' government institutions will take action, just as we have done in 2008, 2009," she said in a reference to the capital injection some banks received during the financial crisis.
"And only then, when a country can't manage this on its own, may the EFSF facility be used," she added, saying that any assistance from the €440 billion (Dh2.1 trillion) EFSF would only be granted with tough strings attached.
Merkel met earlier with Eurogroup Chairman Jean-Claude Juncker behind closed doors. The chancellor had already spoken out in favour of a coordinated recapitalisation of Europe's banking sector on Wednesday, and again Thursday after talks with the IMF.
