February 12, 2013 / 2:07 PM / 5 years ago

Germany pushes to limit euro zone aid to banks

BRUSSELS (Reuters) - The euro zone’s bailout fund should limit any recapitalisation of banks to well below 80 billion euros (69 billion pounds), if anything at all, Germany’s Finance Minister Wolfgang Schaeuble said on Tuesday.

Schaeuble’s ambition of curbing the use of the 500-billion-euro European Stability Mechanism presents an obstacle to countries such as Ireland, which still hopes to get direct assistance from the fund for their banks.

“It’s clear it must be significantly below the 80 billion paid in capital,” Schaeuble told reporters after meeting EU finance ministers in Brussels. “Somewhere between nil and 80 billion euros.”

Euro zone leaders agreed last June to allow the ESM to directly recapitalise banks to stop the rescue of failed banks from piling debt on individual countries.

But Germany and others have deep reservations about using the fund for this purpose because they fear it will leave them on the hook for bad loans made in Spain and elsewhere.

In June, it had also been hoped that this direct aid promise could help Spain, where banks had been hit by a property collapse. Financial markets have since calmed, however, following a pledge by the European Central Bank to intervene, removing the urgency to act.

Schaeuble had earlier said that the offer of bank aid had been designed as a measure to bolster confidence, rather than one which would necessarily be used.

“The ESM is primarily there in order not to be used, but to create confidence, and for that it needs a certain level of lending capacity,” he said.

Reporting by Annika Breidthardt; writing by John O'Donnell

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