Monday, November 29, 1999

Europe will publish bank stress tests in July

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Europe's leaders agreed on Thursday to release the results of stress tests for major banks next month and toughen EU budget rules in steps intended to restore confidence in their currency union.The euro rose to a three-week high against the dollar and concerns about Spain's financial health eased somewhat after Madrid achieved a successful sale of 3.5 billion euros in 10- and 30-year bonds.The run-up to Thursday's EU summit in Brussels had been dominated by concern that Spain, the euro zone's fourth biggest economy, might be forced to tap a 500 billion euro ($613.2 billion) EU safety net set up to halt contagion after last month's rescue of Greece."We agreed that the so-called stress tests of the banks will be published at the latest in the second half of July," European Council President Herman van Rompuy told a news conference after a one-day meeting of EU leaders.German Chancellor Angela Merkel said the intention was to reveal the results on a bank-by-bank basis and that EU finance ministers would work out the details in the coming weeks.French President Nicolas Sarkozy said: "There is a decision to carry them out in all countries, institution by institution."The tests will cover the EU's 25 biggest banks, EU officials and sources said. The results might, however, only partially reassure investors who also have concerns about potential problems in smaller European banks.Germany had been sceptical about releasing the details of stress tests for its banks, which were hit hard by the global financial crisis and have billions of euros in Greek debt on their books. It dropped its objections after France and Spain came out strongly in favour of the move.The euro , which fell to a four-year low against the dollar last week, rebounded to its highest level since late May after the Spanish bond sale and comments from a Spanish Economy Ministry source, who said the Treasury did not need to sell any more debt to meet a 24 billion euro repayment crunch in July.European shares gained for a seventh straight session and the premium investors demand to hold Spanish bonds rather than German benchmark issues narrowed. The spread had shot up to a record high of over 230 basis points earlier on Thursday."The results of the Spanish auction are helping restore confidence and that's also supporting the euro," said Francois Chevallier, strategist at Banque Leonardo in Paris.For Euro zone crisis in graphics, click SANCTIONSHoping to avert future debt crises, EU leaders said countries that do not meet budget and debt targets should face tougher sanctions and budget plans should be submitted to the executive European Commission for peer review before national parliaments.They also agreed on proposals for a European bank levy and said they would propose a financial transaction tax to the Group of 20 developed and developing countries at a summit in Toronto on June 26-27. Some of Europe's partners oppose the idea.U.S. Treasury Secretary Timothy Geithner has been pressing Europe for months to follow Washington's lead and come clean about the state of bank balance sheets -- a move which could allay market fears but also force governments to recapitalise ailing institutions.The EU has so far conducted only one stress test of its entire banking sector, not individual countries or banks. The results in autumn 2009 said the sector was sound and could withstand a much worse economic downturn than had taken place.German Bundesbank head Axel Weber said on Thursday that a new set of European bank stress tests was needed to include a broader swath of the banking industry as well as new stress scenarios such as the sovereign debt crisis.The IMF also threw its weight behind more transparency on European banks.Germany is home to regional Landesbanken that were hit hard by the crisis and have yet to recover fully. The government has been concerned publication could force it to stump up more money for its financial institutions, which could further dent the popularity of Merkel's fractious centre-right coalition.Other countries appear confident that the release of stress tests, which model how individual banks would cope with theoretical downside scenarios, will boost investor trust in their banks."I cannot speak for other countries but certainly as far as (French) banks are concerned, I know that there is willingness to publish, and no trepidation and no anxiety as to what will come out of it," French Economy Minister Christine Lagarde told Reuters Insider television.(For a video of the interview, click Spanish government source said Banco Santander, Spain's largest bank, had the best rating so far in ongoing European stress tests.UNPOPULAR REFORMSThe crisis has forced countries like Spain and France to bring forward long-delayed plans to reform their labour market and pension system.Greece is also pressing ahead with a draconian austerity programme designed to turn around its uncompetitive economy and bring down its debt and deficit.The EU, IMF and ECB, which are overseeing a 110 billion euro rescue for Greece, said on Thursday its reforms were "on track".But trade unions across the bloc are fiercely opposed to the wave of budget cuts and are vowing to step up protests over the coming months.(Reporting by Steve Clarke, Paul Taylor, Crispian Balmer, Brian Love in Paris, Timothy Heritage, Jan Strupczewski, Andreas Rinke in Brussels, Madeline Chambers in Berlin)(Writing by Noah Barkin; editing by Robert Woodward)(For more news on Reuters India, click
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