Friday, April 4, 2008

EU Finance Talks to Solve Banking Crisis

EU Finance Chiefs to Tackle Banking Crisis and Slowing Growth at 2-Day Talks.

European Union finance ministers hold two-day talks in Slovenia starting Friday to address the growing economic troubles amid record-high inflation, a soaring currency and a souring U.S. economy.

Finance ministers and central bankers from the EU's 27 nations will spend Friday and Saturday in Brdo pri Kranju, Slovenia, trying to forge a joint response to the sudden clouds that have dampened the recent European growth spurt.

The smaller group of 15 countries that share the euro will meet separately on Friday to discuss the strength of their currency -- hovering near an all-time high against the U.S. dollar that damages euro exports to the U.S. such as German cars and French luxury goods.

Late last year, French politicians were urging the fiercely independent European Central Bank to cut interest rates to cool the euro's surge but high oil and food prices pushing inflation to record levels -- estimated at 3.5 percent in March, well above the ECB's 2 percent guideline -- have forced them to back off.

Euro governments do not have their hands on borrowing costs, the main lever for officials to moderate economic growth which is controlled by the ECB. The bank has urged them and employers to play their part in avoiding a price spiral by keeping clear of large wage increases.

This has infuriated trade unions, who say they deserve some of the rewards that companies have reaped from an export boom and Europe's recovery in the last two years. Some 35,000 workers are expected to protest in the Slovenian capital Ljubljana on Saturday, calling on European officials to back off their demand to cool wages and give them a pay increase in line with growth.

EU nations will also look at ways to fireproof their own financial system in the wake of a lending crisis that saw banks shy away from risky investments for fear of adding to huge losses made on complex products based on U.S. subprime housing loans to people with poor credit. Last month, they asked banks to come clean on how much they were likely to lose. On Tuesday, two of Europe's largest banks, UBS and Deutsche Bank, did so, writing down billions more in bad investments.

EU nations will examine how the financial industry ran into trouble and what they can do to prevent future problems. EU leaders have already warned that they stand ready to introduce stricter rules if the finance sector doesn't put its own house in order.

They want to see more transparency for all market players and full information on the opaque structured investments out there, better ways of valuing investments and action to tackle possible conflict of interests that saw rating agencies give a good rating to debt resold by the banks that pay them.

The European Commission also plans to reform rules on how much money banks must put by to cover potential losses. It also wants EU nations to choose this week how financial supervisors should work together to prevent on policing the financial industry and decide how much responsibility they should pool -- a tricky issue for countries that fear losing power over their own financial sector.

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