News / Europe

Europe Pushes Toward More Bank Funding

German Chancellor Angela Merkel, left, looks at European Commission President Jose-Manuel Barroso as he speaks during a news conference at the European Commission headquarters in Brussels, Oct. 5, 2011.
German Chancellor Angela Merkel, left, looks at European Commission President Jose-Manuel Barroso as he speaks during a news conference at the European Commission headquarters in Brussels, Oct. 5, 2011.

European officials are moving to add new funding for troubled banks on the continent that are weighed down by the possibility of a Greek default on its debts.

German Chancellor Angela Merkel, leader of the country with Europe's strongest economy, lent her support Wednesday. She said there should be a Europe-wide cash infusion for the banks if  there is a "common view" that the banks need financial help to offset possible losses on government bonds they have bought.

The chief of the International Monetary Fund's European operations, Antonio Borges, said it is "no secret" that the European authorities are working toward adding public money to the coffers of the private banks, much as the U.S. did with its banks in 2008 at the start of the global recession. One international investment bank, Morgan Stanley, said European banks may need $186 billion in new funding.

The bank rescue attempt came as French and Belgian officials worked to keep the cross-border Dexia bank from collapsing. They are planning to put its troubled assets in a separate "bad bank" entity to protect depositors from losing their savings.

In a new report, the IMF said European leaders need to take decisive action to solve the continent's debt crisis, not just solve worries over a possible Greek default. The international funding agency said that Europe needs to use new crisis management provisions it approved in July.

But the IMF said the continent needs to keep money available for economic growth, not just cut government spending.

The agency said the pursuit of deficit targets "should not come at the expense" of risking a widespread recession in 2012, which Borges said "can't be ruled out."

Investors reacted favorably to the new pledges of European action on the debt crisis. Markets in London, Paris and Frankfurt all advanced sharply on Wednesday, after falling significantly earlier in the week.

Some information for this report was provided by AP, AFP and Reuters.

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