The European Commission is threatening to use EU competition rules to close down the failing Greek, Spanish and Portuguese banks that have pushed the eurozone into a new crisis, with Greece's ATEbank the first in its sights.
EU state-aid rules, designed to stop government subsidies distorting competition, give the commission sweeping powers to impose restructuring conditions on bank bailouts or even to block the rescue.
Over the past two years, the rules have been interpreted generously to allow government bank bailouts to go ahead in return for commitments to restructure failing financial institutions but the mood in Brussels has hardened since the initial credit crunch of 2009.
”We are moving into a new phase with Greece, Portugal and Spain,” an EU official told Reuters. “Some banks are going to be squeezed. Some are going to be closed down.”Regular readers know that the banks that should be closed down are the one's that do not have a franchise that is capable of generating the earnings needed to rebuild the bank's book capital level after it has recognized all of the losses on and off its balance sheet.
For example,
Commission officials are pressuring Greece to wind down failed banks, including its fifth-largest lender ATEbank, by threatening to refuse a bailout on competition grounds.
If the EU was to block an ATEbank rescue it would mark a policy shift and a more aggressive stance in tackling weak European banks at the centre of a dangerous new moment in the eurozone crisis.
”If you have a financial stability component, then you could be prepared to rescue a bank, but we are beyond that point now in a number of countries,” the official said. “ATEbank will have to be closed or wound down over time.”
ATEbank, the Greek central bank and the Greek finance ministry have declined to comment.
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