A highly anticipated meeting yesterday resulted in a bland statement by German chancellor Angela Merkel that politicians “are determined to do the necessary to secure the recapitalisation”, which the IMF has said will cost around €200bn (£172bn).
Merkel and French president Nicolas Sarkozy claimed they are in “total agreement” but said they cannot answer questions about any of the crucial technical details of any deal until November’s G20 summit.
Both Merkel and Sarkozy denied that there is a despute over how the region’s bailout fund should be used in the bank rescue. “Germany and France want the same criteria to be applied, and criteria that are accepted by all sides,” said Merkel.
But Germany is believed to want the EFSF used only as a last resort if sovereigns cannot afford to bail out their own banks, whereas France is said to be worried that such a mechanism would jeopardise its triple-A rating.
Any deal will come too late for Dexia, the Belgian/French lender that suspended its shares last week.
After a marathon meeting yesterday, the bank’s board approved a rescue package that will see the lender split into a “good” and “bad” bank. Both will be taken over by the French and Belgian governments, with responsibility for the “bad” bank’s losses split between the two.
The Belgian government will nationalise Dexia’s largely retail banking business in Belgium. Media reports said it would have to pay €4bn to do so.
Healthy units, such as Denizbank in Turkey, will be sold.
A “bad bank” supported by state guarantees will hold €95bn in bonds, including €12bn of sovereign debt of weaker Eurozone periphery nations.
Including €7bn of securities linked to US mortgages, France and Belgium may need to provide guarantees to cover up to €200bn of assets, which would be more than 55 per cent of Belgian GDP.
Moody’s had placed Belgium on review for a downgrade on Friday in light of the plan to underwrite some of Dexia’s most toxic assets.
Meanwhile, a survey of UK chief financial officers by Deloitte has found that a majority plan to shed staff and shrink investment over the next year due to Eurozone fears.
David Cameron yesterday called for decisive action, telling the FT that Eurozone leaders need a “big bazooka” at their disposal.