European Union bail-in rules to reduce taxpayers’ costs in bank rescues may not be appropriate if a banking crisis is systemic, a senior European Commission official said.
The comments by Jose Leandro, a top adviser to Commission president Jean-Claude Juncker on euro zone reform, could signal a departure from a German-led model that has caused concerns in southern European countries.
Leandro said the bail-in is designed to address problems bank by bank but may not be adequate to deal with more systemic crises and may need to be reconsidered “as soon as possible”.
“We are putting in place mechanisms that are not probably the most appropriate to deal with a systemic situation like the one we are seeing in some member states,” Leandro told a conference at the European Parliament, stressing that this was his personal view.
A Commission’s spokeswoman said Leandro’s comments did not reflect the view of the EU executive.
Faced with growing anti-EU and anti-establishment sentiment across Europe, the EU’s executive Commission proposed on Wednesday that budget rules should be loosened next year.
A move to soften bail-in rules may be part of the more lenient stance on fiscal policy.
Bail-in rules became effective this year after lengthy negotiations following the 2007-08 financial crisis which forced EU countries to use billions of euros of taxpayers’ money to rescue banks. They forces losses on bank shareholders and bondholders to reduce costs for taxpayers.
The rules were pushed by Germany, but have been opposed in Italy, Portugal and other countries struggling with a weakening banking sector. Italy has repeatedly urged a review of the rules and a more gradual application.
Leandro said political uncertainty is now one of the main risks faced by the sluggish euro zone economy, and this may further weaken a banking system already saddled with bad loans, inadequate business models and an “overbanked” market.
Leandro, who is involved in preparing the Commission’s strategy to reform the euro zone, said it may be time to reconsider the use of the bail-in.
A Commission white paper on the future of the EU will be presented in March at a summit in Rome to celebrate the 60th anniversary of the treaty that led to the internal market.
Source: Reuters (By Francesco Guarascio, Editing by Catherine Evans)