Belgian Prime Minister Yves Leterme and French Prime Minister Francois Fillon released a joint statement Sunday saying that a solution had been reached as “the result of intense consultations with all partners involved.” Trading on the bank’s stock was halted Thursday after it plunged more than 40 percent last week.
Belgium’s public debt, compared with the size of its economy, is the third-highest in the euro zone, after that of Greece and Italy. France is worried that its AAA credit rating may be jeopardized if it must spend large sums of money on recapitalizing its banks, which are significantly more exposed to Greek debt than banks in Germany. The International Monetary Fund has said that recapitalizing banks could cost $270 billion.
The International Monetary Fund, a key player in eurozone bailouts, on Wednesday pushed for radical changes in the region's handling of the debt crisis.
Oct. 10 (Bloomberg) -- Belgian Prime Minister Yves Leterme and Finance Minister Didier Reynders speak about the decision to buy the local consumer-lending unit of Dexia after concern over the bank's European sovereign debt holdings caused its short-term funding to evaporate.
FAQ: Europe’s debt crisis
France has appeared to favor using the $569 billion euro bailout fund, known as the European Financial Stability Facility, to recapitalize banks, rather than risking exclusively its own money. Markets have been pricing Greek bonds at only 40 percent of their face value, reflecting the expectation that the country will not be able to fully repay them. European policymakers speak privately of making lenders to the Greek government write off half of their loans.
Merkel said last week that she would be in favor of a coordinated effort to recapitalize shaky banks but that she would want to use the bailout fund only as a last resort if banks were unable to raise money on the open market and their governments were unable to shore them up. Merkel and Sarkozy played down any differences Sunday, saying that they were in agreement about what was needed.
Surrendering any amount of sovereignty over economic issues has been a thorny topic for members of the European Union. But the financial turmoil in the euro area’s weaker countries — Greece, Ireland and Portugal have all needed bailouts — has dramatized the need to tackle the problem of 17 countries that are bound to one another by a common currency but that have economies that move at different speeds in different directions.