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| Photo: Sweden's Prime Minister Fredrik Reinfeldt is welcomed by European Commission President Jose Manuel Barroso in Brussels. |
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European Union nations will likely agree on several ways to tackle assets on banks' balance sheets that have caused lending in the economy to freeze and worsened the recession, a senior EU politician said Monday.
EU finance ministers are weighing up options such as a "bad bank" to buy up assets that have punched huge holes in banks' balance sheets or a government guarantee to cover massive potential losses.
Luxembourg Prime Minister Jean-Claude Juncker, who heads economy talks between the euro zone countries, said all 27 EU nations would
probably choose "a range of tools" that would allow each country to pick the best option for its banking sector.
The U.S. is also planning to buy up some of its banks' bad assets, building on last month's move to cover $118 million of Bank of America's toxic investments.
The aim is to free up lending and restore the banking sector to some kind of normality because they would not have to stash funds to cover massive potential losses from securitized debt based on bad loans such as U.S. subprime mortgages.
French President Nicolas Sarkozy and German Chancellor Angela Merkel wrote a joint letter Monday to say that restoring credit to the economy should be the top priority for the EU - and dealing with problem assets would help restore confidence in the banking sector.
Juncker said EU countries needed to move carefully before acting because heavy government spending to buy or guarantee securities "could have a very serious impact on public finances."
"The right sort of treatment of toxic assets can help create stability," he told reporters after talks between euro zone finance ministers on Monday.
The EU's top economy official Joaquin Almunia said he wanted to see shareholders share some of the burden of bad assets and transparent methods to value the investments.
Talks will continue Tuesday before a special EU leaders' summit at the end of the month to make EU nations coordinate a patchwork of stimulus programs they have launched in recent months.
Concerned that governments are using the crisis to protect their industries from rivals, Czech Prime Minister Mirek Topolanek called the summit Monday. An exact date has not yet been set.
Swedish Prime Minister Frederik Reinfeldt told reporters Monday that he was also worried about such state aid that "might be designed to increase protectionism."
Last week, Topolanek criticized Sarkozy for suggesting that a French-owned auto factory in the Czech Republic should be making cars in France.
EU regulators have warned France about insisting car makers only receive government help if they buy French car parts or invest in France - a French effort to reverse a trend where car manufacturing jobs have shifted to lower-wage eastern European nations.
The letter from Sarkozy and Merkel also called on the EU to talk about when they should start reducing public debt. Many euro nations are slipping from budget surpluses into shortfalls as the economy contracts, depressing tax revenues and hiking welfare payments.
On Tuesday, all 27 EU finance ministers will talk about boosting EU spending on energy and infrastructure projects by euro5 billion and lowering some sales tax rates.
By Robert Wielaard (AP)
