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German newspaper Sueddeutsche Zeitung alleges that high-level leaders in the European Central Bank and the eurozone have already begun discussions on a way to extend funding from the European bailout funds—in particular, the European Stability Mechanism—directly to illiquid banks.This flies in the face of commitments from Merkel and other EU leaders not to devote money that is part of the European bailout funds to keep illiquid or insolvent banks afloat.
Last fall, EU leaders agreed to enforce higher capital requirements on banks, saying that if first banks and then countries could not support these rules then the eurozone bailout funds would step in, with a series of conditions.
But this new plan sounds more like a true bank bailout, the kind which would occur if a firm was no longer able to access sufficient funding from the markets.
Here’s the latest from SZ, via Google Translate:
The European Central Bank and the group of euro countries are working at the highest level in an initiative to allow direct access to money-strapped banks from the euro rescue fund ESM. This is to prevent an entire country to tap the rescue fund, although only the banks have to be helped. Germany is strongly opposed.
According to the Sueddeutsche Zeitung , a working group of euro countries is already in the next two weeks to consider how the direct lending from the ESM can be handled in-strapped banks. Time is of the background of acute crisis in Spain and the fear that they spread to other euro countries such as Italy could.”Sitting in Spain before the bailout, focus on the markets of Italy,” said a representative of a euro area country.
It seems clear that such a plan (if it does exist) would be resoundingly rejected by German Chancellor Angela Merkel, who proved resistant to even less ambitious bank funding plans.
If this is true, then it also suggests that EU leaders are very worried about the continued viability of Spanish and Italian banks.
UPDATE: Well, we can’t say we’re surprised. According to Dow Jones, eurozone officials are denying this report.
Interestingly enough, it would appear that this exact same rumour circulated last week.