The International Monetary Fund's chief, Christine Lagarde, met German Chancellor Angela Merkel in Berlin
Wednesday as discord broke out in the European Union over direct aid
to stricken banks.
Officials were silent after Lagarde's hour-long meeting with
Merkel. There has been speculation the IMF is urging Germany to
massively write off debts owed by Greece.
Germany and two more of the EU's most fiscally conservative
members were under fire over how soon the eurozone's bailout fund
will be able to directly recapitalize banks in nations such as Spain.
Madrid wants eurozone loans to be channeled directly into its
lenders to prevent an increase in national debt and deficit levels.
But the finance ministers of Germany, the Netherlands and Finland
had on Tuesday insisted that direct recapitalizations should only be
possible once a eurozone bank-supervision scheme has been created and
"its effectiveness has been determined."
EU officials on Wednesday rejected the position as being out of
line with that of eurozone leaders, who in June underlined that "it
is imperative to break the vicious circle between banks and
sovereigns" as they approved the direct recapitalizations.
"The mandate of the June summit has to be respected," European
Commission spokesman Olivier Bailly told reporters in Brussels. "We
want to implement (it) quickly."
Some politicians have been pushing for rapid action also to take
advantage of a lull in the pressure from the financial markets, which
have repeatedly reignited the eurozone's debt crisis.
The bailout fund, the 500-billion-euro (642-billion-dollar)
European Stability Mechanism (ESM), is seen as key to restoring
confidence in the currency area. It is set to be inaugurated on
October 8, but details on its activities are still being hashed out.
Disagreements also appear to remain on whether Madrid would have
to retain any bank risks on its books as part of the direct
recapitalizations, with the three finance ministers saying that
"legacy assets should be under the responsibility of national
authorities."
EU sources, speaking on the condition of anonymity, said they were
now waiting to see how other eurozone countries react.
German Finance Minister Wolfgang Schaeuble has led the way in
downplaying expectations, repeatedly predicting that the eurozone
bank supervisor - and thus the ESM's ability to directly recapitalize
banks - will not be ready by next year.
Lagarde visited Berlin to attend Schaeuble's 70th birthday party.
She and Merkel discussed "the state of the world economy," government
sources said. Merkel's spokesman Steffen Seibert said earlier the
agenda was the intersection of IMF and German interests.
The IMF is part of a panel drawing up a report on Athens' progress
in pruning government deficits and there have been suggestions it is
pressing Berlin to approve a writedown of debt, costing Greece's
foreign government creditors billions of euros.
The ESM was originally meant to go into operation in July, but was
delayed until the German Constitutional Court weighed in on the
matter. It demanded an explicit ceiling on German liability and
guarantees that the parliament in Berlin will be kept briefed.
The German government on Wednesday approved a supplement to the
ESM treaty, described as an "interpretative declaration," to respect
the court ruling.
The rider says, "No provision of the treaty may be
interpreted as leading to payment obligations higher than the portion
of the authorized capital stock corresponding to each ESM member."
It also states that other parts of the treaty "do not prevent
providing comprehensive information to the national parliaments."
The text, issued as a parliamentary document, said the rider was
to be jointly adopted by all the ESM nations in Brussels.
