Euro zone finance ministers on Monday weighed several ways to tackle the toxic assets of banks in an effort to reactive the flow of credit amidst the global economic crisis.
"We discussed at length all the technical implications of trying to deal with this question of toxic assets," Luxembourg's Prime Minister and Finance Minister Jean-Claude Juncker told a news conference after a regular meeting of finance ministers from the 16-nation euro zone, known as the Eurogroup.
"For some banks it is absolutely vital that we find some way of dealing with ... toxic assets," said Juncker, who also chairs the monthly gathering.
With the banks' balance sheet still troubled by toxic assets, which soured due to potential losses from debt based on bad loans, confidence in the banking sector remains fragile.
Lending remains frozen also despite national efforts to pump billions of euros into the financial system.
Possible solutions suggested so far is to set up a "bad bank" to buy up bad assets or to provide government guarantee to cover massive potential losses from those assets.
European Commissioner for Economic and Monetary Affairs Joaquin Almunia said he wants all 27 European Union (EU) finance ministers, who were to meet Tuesday, to reach an agreement on how to handle bad assets.
Almunia indicated it would be up to each EU member state to decide specific ways of dealing with toxic assets, but any such plan should respect EU competition rules.
"We need to guarantee a level playing field ... and we need to guarantee respect of state aid rules even in this time of crisis," he said at the press conference with Juncker. "This does not mean that all solutions, all the mechanisms should be the same."
Juncker said EU member states would probably choose "a range of tools" that would allow each country to pick the best option for its banking sector.
At the same time Juncker warned that EU governments should be "very aware of the fact that the way we deal with this could have a very serious impact on public finances."
Earlier Monday, Almunia wrote in the Wall Street Journal that agreeing on how to deal with toxic assets would minimize potential cost for taxpayers and avoid distortion of competition.
"The fiscal stimulus measures announced by countries worldwide, including in the EU, should enable us to stem the tide of bad news and create the conditions for a gradual recovery in the second half of 2009," he wrote.
"But for this to happen, the immediate and most urgent priority is to break the spiral of a deteriorating economic outlook creating feedback effects on financial activity and back again onto the real economy," he added.
(Xinhua News Agency February 10, 2009)