AKIA finally gave its approval to extend the powers of the Eurozone’s bailout fund yesterday, paving the way for a far-reaching rescue plan to stem the debt crisis engulfing Europe.
The vote cleared the final hurdle to overhauling the size and reach of the European Financial Stability Facility (EFSF), but turns the focus back onto Eurozone leaders to set out how to bail out banks, states, or both.
EU officials are drawing up plans ahead of the next summit in two weeks that could give banks six months to strengthen their capital position by raising funds from investors or selling assets.
Leaders are insistent that recapitalising the banks would revive investor confidence and help bring a halt to fears over sovereign debt. Bank regulator the European Banking Authority may also mark down banks’ sovereign debt holdings to market value and make them hold more Tier 1 capital to insulate them against further losses.
But Deutsche Bank chief executive Josef Ackermann hit back at the idea of recapitalising banks to compensate for falls in the value of sovereign debt.
“It is not the capital position which is the problem, but the fact that sovereign debt as an asset class has lost its risk-free status,” Ackermann told a conference in Berlin. “The key to the solution is therefore in the hands of governments, to restore confidence in the solidity of state finances.”