The 2008 financial crisis may be almost a decade old, but there’s still a massive mountain of bad debts sitting in European banks. A number of the continent’s bigwigs are now pleading for politicians to take the problem more seriously.
Their answer? Create an E.U.-wide bad bank that could take at least some of the more than €1 trillion in so-called “non-performing loans” across Europe off the financial firms’ hands. It's a tried and true solution for individual banks, and even for entire countries. The idea is to free the rest of the bank to lend more money to consumers.
Europe’s major financial watchdogs threw their weight behind the idea earlier this week. Andrea Enria of the European Banking Authority, a pan-European financial regulator, and Klaus Regling, who heads the euro zone’s bailout fund called the European Stability Mechanism, both spoke out in favor. The European Central Bank has also suggested it is open to the idea.
Standing in their way is Germany. Sources told Handelsblatt that Berlin doesn’t really see the need: “We think it’s good to tackle the problem of non-performing loans,” said one government official in Berlin, “but it’s not clear where the value of a European bad bank would be.”
It's not that Germany opposes bad banks in principle – its own private sector set one up last year. The opposition has more to do with where the outstanding debts are located: Banks in Italy, Portugal, Slovenia, Greece, and Ireland are the main culprits, as well as Hungary and Romania to a lesser degree. Many of these countries are in the process of setting up their own bad banks, but Berlin is worried a pan-European version is just another way to force its own taxpayers to shoulder some of the burden.
That’s the opposite of what Germany has been pushing for the past few years: Officials in Berlin have repeatedly said they're is open to sharing the burden and create more common tools for Europe’s financial system – but only with a fresh start. In other words, the bad debts of the past have to be dealt with by the countries that created them first.
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 authors: [email protected] and [email protected]