France is pressing the EU to adopt a financial stability package to stem the eurozone crisis, believing negative market reaction to the €100 billion bailout of Spain's banks shows the need for more comprehensive action.
Paris is set to propose a package of measures to put the European Central Bank in charge of bank supervision and to use the European Stability Mechanism, the new €500 billion eurozone rescue fund due to come into force next month, to recapitalise banks directly. President François Hollande’s new Socialist government has made clear that it regards agreement on urgent moves to tackle the eurozone debt crisis as the top priority.
As a first step towards a banking union, Paris wants the ECB to assume responsibility for supervising systemically risky banks and their winding up in case of failure. The ECB would stress test the banks, and the ESM would be the tool used if recapitalisation were required. The ESM could only lend directly to banks if its board were to agree to change the rules unanimously, which is opposed by Berlin.
French officials have long argued that the rescue fund should be given a banking licence so that it can leverage its capital and increase its firepower. This would require a change in the treaty establishing the fund which has yet to be ratified by a number of countries, including Germany. The case was supported by the previous centre-right government of Nicolas Sarkozy but vetoed by Berlin. Paris wants the issue put back on the table.
Paris believes Italy and Spain are sympathetic to its proposals and that it is making progress with Germany. They will be part of France’s submission ahead of the EU summit to Herman Van Rompuy, head of the European Council, that will include Mr Hollande’s proposals for accompanying measures to stimulate growth.
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