EU Raises Stakes in Crisis with New Plan
The European Union hopes to push its member states to take firmer action on the debt crisis when it presents Wednesday a broad new plan to fight market turmoil, from strengthening weak banks to lowering Greece’s debt burden.
The plan is the boldest attempt yet to stem the crisis, which has linked the fortunes of highly indebted states like Greece, Ireland and Portugal with those of the banks that own those countries’ bonds.
However, the proposals to be unveiled by European Commission President Jose-Manuel Barroso in the afternoon will face resistance among the bloc’s 27 members, many of whom have been wary of putting up more money to shore up struggling governments and banks.
Officials say that the Commission, the EU’s executive, sees this as the final opportunity to get a grip on the debt crisis, which has already forced three states into multibillion euro (dollar) bailouts and now threatens to push the world economy into a second recession.
In the proposals, which were still subject to heated discussions in the Commission Wednesday morning, Barroso will set out a coordinated plan to increase European banks’ capital by lifting the amount of low-risk assets they have to hold to absorb losses on other investments. He will also propose ways to maximize the impact of the region’s bailout fund new powers, so it can help weak governments strengthen their banks and keep the crisis from engulfing Italy and Spain.
The hope is that EU leaders, who are still divided on how to deal with the crisis, will embrace the proposals at their summit on Oct. 23.
"This crisis started with the financial crisis (of 2008). Three years later we are still facing doubts about the capacity of the banks to cope with, for instance, their exposure to sovereign risk," Amadeu Altafaj Tardio, spokesman for Olli Rehn, one of the three commissioners who drafted the proposals with Barroso, told AP Television News on Wednesday.
Ahead of the plan’s announcement, banking shares across Europe rallied hard. France’s Societe Generale, which is heavily exposed to Greek debt, saw its stock rise 5 percent. Alpha Bank in Athens was up over 16 percent.
Until now, the Commission has worked mostly behind the scenes ahead of crucial summits, presenting states with different technical options that were not publicly discussed before the meetings. By unveiling the plans in front of the European Parliament 11 days before the summit, the Commission hopes to pile more pressure on national governments to take on radical options.