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Friday, March 25, 2011

EU prepares to help banks amid worries on Ireland

(Reuters) - European Union leaders will agree this week to prepare to recapitalise banks that fail upcoming stress tests, according to a draft statement obtained by Reuters on Wednesday.
Thursday's EU leaders' summit is supposed to sign off on a programme of better economic governance. But urgent issues such as whether a crisis in Irish banks is worse than believed are likely to dominate discussions on the sidelines.
German Chancellor Angela Merkel will meet Irish Prime Minister Enda Kenny at the summit, with concerns growing that Ireland may need more than the 35 billion euros already set aside under an EU/IMF bailout to prop up its banks.
But with Irish bank stress tests still under way and any preliminary findings under wraps, Kenny is unlikely to be able to sooth such worries.
"There is almost certainly not going to be a resolution of the Irish issues tomorrow or Friday," said one European diplomat, who spoke on condition of anonymity.
"The feeling is that the outstanding issues for Ireland, which is not just the interest rate (on EU-IMF loans) but the banking question, are better dealt with as a package," he added, saying countries may have to meet again to tackle the matter.
In a draft statement due to be published after the March 24/25 summit, the leaders will outline only their broad ambition to agree on a plan to restructure troubled banks and decide how governments can help them.
"Member states will prepare, ahead of the publication of the results, specific and ambitious strategies for the restructuring of vulnerable institutions, including private sector solutions (direct financing from the market or asset sales)," the draft says.
The announcement will be a direct response to demands from the top EU regulator, the European Banking Authority, for backstops to be in place before it publishes pan-EU stress test results of 90 banks in June.

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