dodgy assets Schäuble Against European Bad Bank

EU finance ministers want to discuss measures for eliminating almost €1 trillion in bad loans saddling European banks at their meeting on Saturday. Germany's finance minister has his own idea of how he'd like that to go, one that might be well received at the meeting.
Photo source: dpa

Finance Minister Wolfgang Schäuble (CDU)  supports the idea of creating bad banks in Europe, just not an overall European bad bank, Handelsblatt has learned.

EU finance ministers plan to discuss how to tackle Europe’s mountain of bad loans on Saturday, and sources said that a proposal for a European Union-wide bad bank will likely be passed over in favor of Mr. Schäuble's recommendation that national bad banks be established.

This could be done "on the basis of a uniform blueprint approved by the European Commission,” according to a position paper from the German finance ministry obtained by Handelsblatt.

Germany's finance minister rejects the idea of an EU bad bank based on the differing conditions in individual countries. Instead, there could be a European program "with mandatory dismantling targets" for bad loans, the ministry said.

Banks in the European Union have accumulated bad loans totaling €920 billion ($980 billion) on their balance sheets. Greece, Cyprus, Portugal and Italy are all directly affected. The unresolved issue of bad credit also affects "the overall perception of the European banking sector in the markets, particularly within the European banking community," the paper says.

Malta’s Finance Minister Edward Scicluna, who chairs the EU’s Economic and Financial Affairs Council, will host his colleagues from the other 27 EU member states this weekend at an informal meeting of the council in his native city of Valletta.

The vice president of the European Commission responsible for banking regulation, Valdis Dombrovski, wrote in a letter to Mr. Scicluna obtained by Handelsblatt that “the high percentage of non-performing loans” has “negative effects on long-term economic growth and financial stability” in Europe.

The German position is that non performing loans are a problem in some member states, but are not a European phenomenon, and should be dealt with on a national level.

The stance is a knock back for EU banking monitor Andrea Enria who had at the end of January called for the non performing loans to be transferred from the banks’ balance sheets to a European asset management company, tasked with combining the loans into bundles, securitizing them and selling them with a state guarantee on the capital markets within three years. To appease those who objected to asset transfer across the EU the losses incurred would have to be borne by the banks or states from where the bad loans come.

But Mr. Enria found few supporters for his plans, and his proposals aren’t expected to play a major role at the finance ministers’ meeting in Malta on Saturday.

 

Ruth Berschens heads Handelsblatt's Brussels office, leading coverage of European policy. Jan Hildebrand leads Handelsblatt's financial policy coverage from Berlin and is deputy managing editor of Handelsblatt's Berlin office. To contact the author: [email protected] and [email protected]