European Commission President Jose Manuel Barroso has unveiled a plan he says “charts Europe’s way out of the economic crisis”.
He said the region’s banks have to be strengthened urgently to win back confidence and they need to put aside more money to cover future losses as – “like it or not” – the sovereign debt problem is linked to the fate of the banks.
Barroso told lawmakers in the European Parliament: “To break the vicious cycle of uncertainty over sovereign debt sustainability and over growth prospects, we need comprehensive solutions now.
“Banks should use private sources of capital first, if necessary the national governments should provide support as a next step, and a last resort (should be)drawing on a loan from the ESFS.”
The European Financial Stability Facility only being used as a last resort was a key demand by Europe’s biggest economy Germany.
At the same time officials said euro zone countries are to ask financial institutions to accept losses of up to 50 percent on their holdings of Greek debt.
It is part of Brussels grand plan to avert a disorderly default and try to end the crisis threatening the world economy.
That is far more than the 21 percent loss they had asked banks, pension funds and other financial institutions to accept in July as part of a second rescue package for Athens.
Since then, the Greek economy has sunk deeper into recession, fanning fears of an outright default and forcing euro zone leaders to consider more radical action to stem their crisis.
Barroso also said the European Commission would make a proposal on common euro zone bonds by the end of the year.