Friday, August 19, 2011

Franco-German Leaders Endorse Secondary Market Intervention to Preserve Stability and Rating Agency Reform

In a joint communiqué, French and German leaders endorsed, in principle, the finance recapitalization of financial institutions and intervention in the secondary markets on the basis of a European Central Bank analysis recognizing the existence of exceptional financial market circumstances and risks to financial stability and on the basis of a decision by mutual agreement of Member States to avoid contagion. The leaders affirmed their commitment to fully implement the decisions taken by heads of state and government and EU institutions on July 21, 2011, in a statement issued by the Council of the European Union.

The Council also agreed, where appropriate, to implement a collateral arrangement to cover the risk arising to euro area Member States from their guarantees to the European Financial Stability Fund. The Council, and by implication the leaders, also agreed that reliance on external credit ratings in the EU regulatory framework should be reduced, taking into account the European Commission's recent comments in that direction, and the Council looks forward to the Commission proposals on credit ratings agencies.

Recently, EU Commissioner for the Internal Market Michel Barnier said that the Commission has as a top priority addressing reliance on credit ratings. Commissioner Barnier said that credit ratings are too embedded in legislation and that he intends to reduce as much as possible the references made to those ratings in prudential rules.

Commissioner Barnier is working on an initiative to address over reliance on credit ratings. He said that the Commission wants credit ratings to be considered simply as one view among other views. According to Commissioner Barnier, this is an issue of financial stability, as well as an issue of political responsibility and democracy. The Commission can neither justify nor accept that private companies have such power over populations.

Joint Franco-German communiqué on the current situation in the euro zone

"President Sarkozy and Chancellor Merkel reiterate their commitment to fully implement the decisions taken by the heads of state and government of the euro area and the EU institutions on July 21st 2011.

In particular, they stress the importance that parliamentary approval will be obtained swiftly by the end of September in their two countries.

They welcome the recent measures announced by Italy and Spain with regard to faster fiscal consolidation and improved competitiveness.

Especially the Italian authorities' goal to achieve a balanced budget a year earlier than previously envisaged is of fundamental importance. They stress that complete and speedy implementation of the announced measures is key to restore market confidence.

As decided on July 21st, the effectiveness of the EFSF will be improved and its flexibility increased linked to appropriate conditionality, in particular through the following instruments: precautionary programme, finance recapitalization of financial institutions and to intervene in secondary markets on the basis of an ECB analysis recognizing the existence of exceptional financial market circumstances and risks to financial stability and on the basis of a decision by mutual agreement of the member states, in order to avoid contagion.

In line with 21st July decisions, France and Germany are confident that the ECB analysis will provide the appropriate basis for secondary market

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