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EU bailout fund could also finance bank rescues, Brussels says

Business Materials 6 July 2010 02:25 (UTC +04:00)
The funds created to keep euro area states away from bankruptcy could also be used to rescue their banks, the European Commissioner for Economic Affairs, Olli Rehn, said Monday
EU bailout fund could also finance bank rescues, Brussels says

The funds created to keep euro area states away from bankruptcy could also be used to rescue their banks, the European Commissioner for Economic Affairs, Olli Rehn, said Monday, dpa reported.

To quell market worries about the solidity of the European banking system, following Greece's near default and looming debt crises in Spain and Portugal, EU leaders said that so-called "stress tests" on the exposure to risk of leading European banks would be made public.

Rehn said that EU funds should be ready to intervene in case the publication of the tests, due later this month, reveal any problems.

"We need to have the financial buck-stops in place in case there are pockets of vulnerability," he said, speaking to the economics committee of the European Parliament in Strasbourg, France.

"The first funds in line will be the national stabilisation funds, and then in the second line of defence we have the EU financial buck- stops," he added.

Rehn was referring to the 500-billion-euro (627-billion-dollar) package leaders agreed in May, comprised of a 60-billion-fund directly directly managed by the EU Commission and a larger 440- billion-euro pot provided by EU governments.

The EU's intervention could be "topped up if necessary by support (from) the International Monetary Fund," which pledged to add up to 250 billion euros to the EU rescue mechanism, the commissioner indicated.

But Rehn stressed that aid would be conditional to countries submitting updated austerity plans "focused in particular on the restructuring of the banking sector and addressing the potential needs of possible recapitalisations."

Experts have repeatedly warned that Spain may need outside help to finance the restructuring of its network of cajas, regional savings banks that were hit hard by the collapse of the construction industry.

The 60 billion euros from the commission-managed fund would be ready in case of need.

However, the establishment of the 440-billion-euro European Financial Stability Facility (EFSF) is being delayed by Slovakia, where a new government has been reluctant to stump up its part of the cash.

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