Wednesday, May 30, 2012 - 08:31

Germany's Government Still Opposes Direct ESM Aid For Banks

BERLIN (MNI) - The German government on Wednesday reaffirmed its opposition to allowing European Stability Mechanism, Europe's permanent bailout fund, to directly lend to troubled banks in the Eurozone.

Government spokesman Steffen Seibert said at a regular press conference here that the German rejection of the idea of any direct recapitalisation of banks by the ESM "is well known."

The treaty creating the ESM explicitly states that the fund can only lend to governments in return for promises of reforms. The German government has stressed on numerous occasions that it insists that this passage of the treaty is respected. The treaty has yet to be ratified by most governments including Germany.

The European Commission, however, argued in a report released earlier today that having the ESM bailing out troubled banks could help break the unhealthy mutual dependency of the currency bloc's banks and governments.

"To sever the link between banks and the sovereigns, direct recapitalisation by the ESM might be envisaged," the Commission said in its analysis.

The highly indebted Spanish government currently faces problems in rescuing its troubled banking sector.

German finance minister Wolfgang Schaeuble will meet his Spanish colleague Luis de Guindos in Berlin today, German ministry spokesman Martin Kotthaus said. There will be no press statement after the meeting because the talks will be "informal," he explained.

Seibert said the German government still had confidence in the Spanish government's reform course.

--Berlin bureau: +49-30-22 62 05 80; email:

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