ECOFIN:EU Fin Mins Plan Financial Bailouts, No US-Style Fund

LUXEMBOURG -(Dow Jones)- European Union finance ministers Tuesday agreed to a set of principles that will guide potential bailouts of banks and insurance companies, but stopped short of setting up a bloc-wide, U.S.-style support fund.

We "reiterated our determination to guarantee stability and solidity in our banking system," French Finance Minister Christine Lagarde told a news conference after the ministers' regular monthly meeting.

Crucially, the ministers agreed that countries should act at a "national level" to shore up their big financial institutions, a move that some finance ministers argued was insufficient. They argued that the E.U. financial system would still be vulnerable if a large lender operating across borders starts to fail.

France and the Netherlands had suggested the bloc create a broad bailout fund, with each country contributing an amount based on its gross domestic product. But some countries, particularly Germany, disagreed, arguing that they shouldn't pay for foreign banks' mistakes.

The ministers agreed that they should coordinate their support for failing institutions, if needed. They also said state funding should be timely and temporary and avoid unfairly hurting an ailing bank's competitors.

The European Commission's antitrust chief, Neelie Kroes, who also participated in the ministers' meeting, said the regulator will reassess its rules governing state subsidies in order to ensure adequate support for struggling banks.

-By Adam Cohen, Dow Jones Newswires; +322 741 1486; adam.cohen@dowjones.com

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(END) Dow Jones Newswires

October 07, 2008 09:37 ET (13:37 GMT)


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