Eurogroup leaders reach an agreement on action to safeguard the financial system

The Eurogroup Heads of State and Government held a financial crisis summit in Paris on October 12th, in order to define a joint action plan for the eurozone and the European Central Bank. In this meeting the Eurogroup reinforced the idea of a common framework for MS actions against the financial turmoil and support to their financial system.

In their meeting held in Paris October 12th, the Eurogroup Heads of State and Government, reached an agreement on how the European Union should react to the financial crisis under a common framework.

In their declaration after the meeting, Heads of State and Government agreed on the fact that Financial systems contribute essentially to the well functioning of MS's economies and are therefore a necessary prerequisite for growth and a high level of employment. Millions of depositors have trusted their wealth to their financial institutions. The consequences of the current financial market crisis jeopardize the crucial economic role of the financial system.

They also stressed that since the beginning of the crisis, the European Union has acted to address the challenges posed to the financial system, committing themselves to take decisive action and use all available tools to support relevant institutions and prevent their failure and effectively acted in several cases, increasing transparency and disclosure on banks exposure and enhancing retail deposit guarantee protection.

But, currently, further concerted action are urgently needed, given the persistent problems of bank financing and the contagion from the financial crisis to the real economy.

Therefore, Eurogroup leaders confirmed in that meeting their commitment to act together in a decisive and comprehensive way in order to restore confidence and proper functioning of the financial system, aiming at restoring appropriate and efficient financing conditions for the economy. In parallel, Member States agree to coordinate measures to address the consequences of the financial crisis on the real economy, in line with of October 7th Ecofin conclusions. They, in particular, welcome the EIB’s decision to mobilise 30 billions € to support European SME’s and its commitment to step up its ability to intervene in infrastructure projects.

As members of the Euro area, they acknowledge a shared common responsibility and have to contribute to a common European approach, inviting European partners to adopt the following principles so that the European Union as a whole can act in a united manner and avoid that national measures adversely affect the functioning of the single market and the other member States.

Objectives of the coordinated approach to agreed by EU and Euro area governments, central banks and supervisors

  • Ensuring appropriate liquidity conditions for financial institutions.
  • Facilitating the funding of banks, which is currently constrained.
  • Providing financial institutions with additional capital resources so as to continue to ensure the proper financing of the economy.
  • Allowing for an efficient recapitalisation of distressed banks.
  • Ensuring sufficient flexibility in the implementation of accounting rules given current exceptional market circumstances.
  • Enhancing cooperation procedures among European countries.

In the current exceptional circumstances, Heads of State and Government stress the need for the Commission to continue to act quickly and apply flexibility in state aid  decisions, continuing to uphold the principles of the single market and of the state aid regime.

In their declaration, they also welcome the measures taken by the ECB and other Central Banks to improve the conditions for the refinancing of banks and to provide more longer term funding, as well as the intention of the ECB and the Eurosystem to react flexibly to the current market environment, in particular in considering to further improve its collateral framework with regard to the eligibility of commercial paper.

Besides, with a view to complementing the actions taken by the ECB in the interbank money market, the Governments of the Euro Area are ready to take proper action in a concerted and coordinated manner to improve market functioning over longer term maturities. The objective of such initiatives should be to address funding problems of liquidity constrained solvent banks.

While acting quickly as required by circumstances, MS will coordinate in providing these guarantees as significant differences in national implementation could have a counter-productive effect, creating distortions in the global banking markets. It is therefore necessary to work in cooperation with the European Central Bank so as to ensure consistency with the management of liquidity by the Eurosystem and compatibility with the operational framework of the Eurosystem.

Governments remain committed to support the financial system and therefore to avoid the failure of relevant financial institutions, through appropriate means including recapitalization. In doing so, they will also be watchful regarding the interest of taxpayers and ensure that existing shareholders and management bear the due consequences of the intervention. Emergency recapitalisation of a given institution shall be followed by an appropriate restructuring plan.

The Ecofin Council with the support of the Commission and in cooperation with the European Central Bank will report in due time to the European Council on the implementation of these decisions.