Finland's PM proposes bank-funded EU crisis fund

Reuters News
Posted: Aug 10, 2012 12:08 AM
Finland's PM proposes bank-funded EU crisis fund

HELSINKI (Reuters) - Finland's prime minister has proposed a banking sector-funded European crisis fund to recapitalize troubled banks as part of Europe's plans for a banking union to tighten supervision.

The premier of triple-A rated Finland, one of only four remaining euro zone members to retain the top credit rating, also said the European Union should fully implement decisions made to establish closer fiscal union.

"We should be able to build a system where banks cannot shake up whole countries. One solution in addition to monitoring could be European banks' crisis fund," Jyrki Katainen was quoted as saying in an interview with economic magazine Talouselama published on Friday.

He suggested the fund, which would get its money from European banks, would be used to recapitalize viable parts of troubled banks.

The European Central Bank, the European Commission and euro zone member states are working on a proposal for creating a banking union and are debating what powers the new bank watchdog should get. The plan is expected to be announced in September.

While Katainen's government is pro-euro, it has taken a tough stance on bailouts and has demanded collateral in exchange for loans to struggling euro zone countries. It has also opposed measures such as the European bailout fund buying sovereign bonds in the secondary markets to support weak euro zone states.

"The euro (zone) cannot be developed in a way that all members cannot accept or that would weaken competitiveness of some who take care of their public finances well. There would be no sense to do so," he said in the interview.

On closer fiscal union, Katainen said recent decisions needed to be enforced.

"We have already created the rules. Now it is about the euro zone fully implementing these rules and following them," he said.

The magazine said Katainen also said that too often recent decisions in the EU had been made as a result of talks between large economies like Germany and France.

Katainen said that although he supports a strong European Commission, he wants national governments to keep control over taxation.

"I don't support that kind of EU, where the EU's budget is significantly increased or taxation responsibility and power is fully, or even in significant parts, moved to the union level."

He has said previously that he believes a strong European Commission is important to ensure smaller states have a say in decision making.

Talouselama interviewed Katainen on August 1.

(Reporting by Terhi Kinnunen; Editing by Susan Fenton)