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News : EU Economy Last Updated: Feb 16, 2011 - 6:30 AM

Eurogroup finance ministers agree on bigger bailout fund; EU banks will be subject to "single rulebook"
By Michael Hennigan, Founder and Editor of Finfacts
Feb 15, 2011 - 3:58 AM

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Fine Gael leader, Enda Kenny, with German Chancellor Angela Merkel, at the ruling Christian Democratic Union party headquarters, Berlin, Feb 14, 2011.

Eurogroup finance ministers on Monday agreed on a bigger bailout fund, which will replace the current one in 2013. Meanwhile, the head of the new European Banking Authority said EU banks will be subject to a "single rulebook."

Jean-Claude Juncker, the Luxembourg prime minister and head of the Eurogroup of 17 Eurozone countries, said after Monday's meeting in Brussels that while the total of  €500bn available to the current European Financial Stability Facility (EFSF) bailout fund, will also apply to the permanent European Stability Mechanism (ESM) from 2013, the new fund will be able to lend all the €500bn facility compared with the current ceiling of €250bn, because of requirement to have a triple A credit rating.

The International Monetary Fund (IMF) will contribute an additional €250bn.

“I do think this will be enough,” Juncker said.

A Franco-German “pact for competitiveness” is being pushed by Angela Merkel, the German chancellor, and Nicolas Sarkozy, the French president, as part of the package of Eurozone governance reforms to be agreed in March.

EU Economic and Monetary Affairs commissioner, Olli Rehn, said on Monday that the EU-IMF bailout that was approved last November, will not be opened for renegotiation by the new Irish government.

In Berlin, Fine Gael leader, Enda Kenny, told Chancellor Merkel that Ireland's 12.5% corporation tax rate cannot be changed but German media has quoted other politicians as saying the issue is still on the table.

In answer to questions on the position of the next Irish government, Rehn told reporters that flexibility was not in prospect immediately but he did not rule out a review in future years.

“I’m of course following the Irish debate closely and I’m aware that in democratic politics we have freedom of speech and freedom of positions. At the same time, it is clear that the EU has signed the Memorandum of Understanding with the State, with the Republic of Ireland and we expect continuity and respect of the memorandum,” he said.

“It is essential to respect the plan, respect the memorandum and especially for 2011 the decisions are very much framed by the memorandum but concerning the outer years there is more room of manoeuvre.”

Rehn also said that the pricing of the loans was under review in the light of concern about “the real issue of debt sustainability and its relation to growth dynamics.”

The composite interest rate of 5.8% on the Irish bailout is likely to be cut.

Meanwhile, Andrea Enria, the head of the new European Banking Authority, says in an interview with the Financial Times, published today, that the EBA would need to use its new powers - -  enshrined in a “single rule book” - -to take a stronger line.

As head of  the EBA’s predecessor body, Enria said he tried 5 years ago to get the national regulators to boost banks’ liquid assets and harmonise their rules on bank capital - - policies that could have saved European banks from much of the fallout from the financial crisis.

His immediate priority is that the current round of bank tests have credibility, in contrast with last year's when Ireland's Allied Irish Banks, passed the stress test in July and by December had to be effectively nationalised.

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