Merkel backs plan to prop up Eurozone banks

GERMAN chancellor Angela Merkel said she would support moves to plough fresh capital into the Eurozone’s banks if they had to write off large chunks of their holdings of government debt yesterday.

Merkel backed the move to inject more state funding into the region’s banks to restore confidence in them as they struggle to contain losses on the value of their vast sovereign debt holdings.

“The German government stands ready to implement such a capitalisation of the banks if it is needed,” Merkel said at a press conference in Brussels following fresh talks, adding that European leaders would address the issue when they meet later this month.

“We need criteria. We are under pressure of time. I think we need to take a decision quickly,” she added.

Her comments came as France’s finance minister François Baroin admitted for the first time that private sector lenders to Greece may have to take bigger haircuts on their bond holdings than previously agreed.

European banks are bearing the brunt of market fears over the evaporating value of their bond holdings, with some such as Franco-Belgian bank Dexia pushed to collapse by investor concerns over its sovereign debt exposure.

But German bank executives expressed concern at the surprise announcement from finance minister Wolfgang Schaeuble (pictured) that Berlin could reactivate measures used at the height of the banking crisis in 2008, such as the SoFFin rescue fund, to prevent another crisis.

Germany’s banking sector issued a statement saying there was no need to revive such measures, because “This is not the current scenario.”