European central bankers warn against levy on profits

European central bankers warn against levy on profits
MENAFN - Arab News - 18/04/2010


(MENAFN - Arab News) Three of the leading figures at the European Central Bank each warned on Saturday that ideas for a levy on bank profits, pushed as a way to create a buffer against future crises, need much more work.

"We insist very much on the fact that we need proper sequences and a proper respect of the Basel committee," ECB chief Jean-Claude Trichet told reporters after a meeting of EU finance ministers in Spain, referring to the international banking industry's in-house panel of regulators.

Trichet said that a re-drawn banking and financial system had to be "resilient," underlining that it must not "hamper the recovery" under way and therefore that possible taxation had to be examined in the light of other reforms.

Both Sweden and the European Commission have come up with plans that were discussed informally by the EU ministers.

Portugal's Vitor Constancio, who takes office next month after being elected as Trichet's deputy last month by leaders of the 16 euro nations, also told reporters that proposals to tax banks, which emerged amid anger over huge taxpayer bailouts, could not be set up in isolation.

Constancio said levy ideas could only be properly assessed after tests on separate proposals to regulate banks' capital liquidity, "because we need to assess the overall impact of everything that is now being studied regarding future regulation of the banking sector." "It's a little bit premature," he underlined.

"I also think that if governments want to go ahead, that this be linked with deposit guarantee schemes and possibly used only for restructuring and resolution problems of the banking sector itself, not for any other purposes."

Mario Draghi, who represents the Bank of Italy at the ECB, likewise insisted that the levy's broader economic impact - with wide variations in suggested levels - had to be examined fully first.

He said banks were already losing "more and more" through write-downs on credit losses.

European Commissioner for Economic and Monetary Affairs Olli Rehn said after the talks that politicians should not over-regulate.

Spanish Finance Minister Elena Salgado, hosting the meeting, added that authorities had to "avoid imposing on the financial sector excessive charges that could weigh on the economic recovery." Europe's financial services overlord, France's Michel Barnier, warned on Friday that deals on banking regulation were needed quickly if anything stronger than "artificial" controls are to be put in place.

"I hear ministers and bankers telling me: go easy, if you ask for capital requirements that are too great, we won't have any money left with which to finance the economy.

"I remind them of the costs of the crisis," Barnier underlined, adding it was "unacceptable for taxpayers, because we hadn't drawn up new mechanisms, to be forced to pay for the mistakes and over-the-top actions of certain actors within the financial system."

Meanwhile, Greece's finance minister said Saturday that market worries over Greek bonds could calm when the country agrees more details on standby loans with European Union and International Monetary Fund officials after talks next week.

George Papaconstantinou told reporters that Greece has passed its "most difficult" month for refinancing its swelling debt by successfully selling some 12 billion euros of debt in April. It needs to sell more than 10 billion euros in May, he said. He claimed that Greek government moves to reduce its budget gap and the provision of some 45 billion euros in bailout loans from the IMF and other countries that use the euro should now reassure investors. He also sought to soothe fears that a bailout would be slow in coming, saying other euro zone countries told him that parliamentary approval would take "one week or two weeks at the maximum."

Spreads, or the difference between Greek and benchmark 10-year German bonds, soared last week on news that Germany would require a vote from its parliament, which can sometimes take months. "Markets are pushing to see more detail and more specifics on the support mechanism," Papaconstantinou said, also blaming high interest rates on "people out there trying to make a buck" by betting on the chance that Greece could be unable to repay debt. Some of that detail should come from technical talks due to start Monday when officials from the European Commission, the European Central Bank and the IMF are due to arrive in Athens to talk about the conditions for loans and how the loans will be financed.

Greece requested the talks Thursday. Papaconstantinou insisted that this was "not tantamount" to asking for a bailout. He warned that the "Icelandic cloud" of volcanic ash grounding flights in northern Europe could prevent those officials from coming. There is no timetable for concluding the talks, he said. Greece will remain on track to reduce its deficit by four percentage points even if the EU statistics agency revised its yearly budget gap up, he said. He estimated the deficit at 12.9 percent - higher than an earlier forecast of 12.7 percent. Greece shocked markets and other countries in the 16-nation European currency zone when it said last September that its 2009 deficit would be four times above the EU's maximum limit of 3 percent of national income.

That set off a series of shockwaves, sending the euro tumbling and hiking the cost of Greek government borrowings as markets demanded higher interest rates to lend to a country they believed could default on its debt. It also saw EU governments demand Greece make painful reforms to curb the deficit. Papaconstantinou said the backstop loans made fears of a default "completely irrelevant," predicting "a resurgence of interest in Greek government issues." "We have had to pay, of course, a high interest rate, but there has never been any lack of interest in Greek government bonds," he said.