French Economy Minister Christine Lagarde suggested in an interview with a German newspaper that the European Union, of which France is currently president, sets up a rescue mechanism to stop the collapse of European banks.
“What happens if a smaller EU state is hit by looming bank collapse? Maybe this country does not have the means to save the bank. Therefore the question of a European safety net solution comes up,” Lagarde told business daily Handelsblatt in an interview published on Thursday.
A European official, who did not wish to be named, said that the proposal was for €300 billion ($440 billion) be placed at the ready but sources in the French Eonomy Ministry denied such a sum had been named.
The talk eventually even forced Lagarde to deny there was a bailout fund in the works. “As for the fund, the plan for a fund, is concerned, there is no such a thing,” Lagarde told BBC television.
But even without talking about its possible size, the German government has made clear that it is opposed to any such European mechanism. “Germany does not think much of such a plan,” German Finance Ministry spokesman Torsten Albig told AFP.
Another German government spokesman said that “in the 27-nation EU there are very different conditions when it comes to financial markets as well as different cultures in the financial systems.
“We do not want … to engage in any speculation that any European solutions or models will be discussed in whatever form,” spokesman Thomas Steg told a regular government news conference in Berlin.
Chancellor Angela Merkel meanwhile ruled out writing “blank cheques” for banks, “whether they have behaved responsibly or not,” according to an interview with the Bild daily on Thursday.
A report in Thursday’s Financial Times Deutschland said that Merkel and Finance Minister Peer Steinbrück had been irritated by France’s proposal for a safety mechanism.
The meeting on Saturday, announced by Eurogroup head Jean-Claude Juncker, is supposed to include French President Nicolas Sarkozy, Merkel, Italy’s Silvio Berlusconi, British Premier Gordon Brown, as well as European Central Bank president Jean-Claude Trichet. France has not confirmed the timing, however.
Berlin said earlier on Wednesday that the session would not be a “crisis meeting” aimed at thrashing out a European rescue model for the continent’s banks.
“It is about an exchange of opinions and experiences and as far as we know it is about coordination ahead of important meetings that are taking place in October,” such as Group of Seven finance ministers and central bankers in Washington on October 10 and an EU summit on October 15-16, Steg said.
As lawmakers in Washington have wrangled over their own $700-billion rescue package, European governments have been forced to ride to the rescue of several major European banks this week.
The British government announced Monday the nationalisation of Bradford & Bingley, coinciding with the €11.2-billion bailout of banking and insurance group Fortis by the Belgian, Dutch and Luxembourg governments. A day later, Belgium, France and Luxembourg joined together again to inject €6.4 billion into banking group Dexia and in Germany Hypo Real Estate was saved by a government-backed rescue action.