International Financial Crisis
Ladies and gentlemen,
The banking and financial crisis which began in summer 2007 has worsened over the past few weeks. We are now confronted with an unprecedented crisis of confidence, which threatens to paralyse the global economy.
Confidence must be restored as fast as possible.
In the current circumstances, only the States and central banks have the wherewithal to do this. (…)
Happily, the time of "every man for himself" is over. Now the States most concerned have decided to tackle the difficulties together. This is the approach which France as European Union President has sought to make prevail in Europe. (…)
A decisive step was taken yesterday with the meeting in Paris of the Eurogroup heads of State and government and adoption of an extremely ambitious action plan capable, because of its scale, of stemming the crisis.
The principles of this plan were made public yesterday evening. These are commensurate with the stakes. Every Euro Area member country has pledged to implement them in a manner depending on its own domestic situation and the means at its disposal. (…)
As everyone now realizes, we must free up interbank lending. (…) This is why the State is going to guarantee the loans the banks need to refinance themselves. This guarantee will apply to loans contracted before 31 December 2009 and for a duration of up to five years. Repayment of the guaranteed loan will have priority over that of all other outstanding claims in the event of the institution’s failure.
So a special company will be created to refinance the banks. The State will guarantee the loans it makes for this purpose. Of course, there is no question of the State guarantee, which is an unprecedented effort and commits the money of the French, being granted without something in return. (…)
So the institution will have to pay a normal market price for the guarantee. Also in return for the guarantee it will have to sign an agreement setting the obligations incumbent on it. These obligations will first of all be of an ethical nature – I’m thinking in particular of pay and bonuses. (…) They will also concern the financing of individuals, businesses and local authorities. Indeed, the State guarantee must be used to reprime the credit pump and not fuel precautionary hoarding. (…)
The ceiling for guaranteed loans to banks has been set at €320 billion. This figure is a maximum which will very probably never be reached. In no way will it be a cost to the taxpayer since it is only a guarantee coming into play solely in the event of an institution failing. If there is no failure, the taxpayer will gain the amount of the commissions collected on the underwritten guarantees.
The other problem to resolve in order to overcome the crisis of confidence concerns the difficulty banks are having in getting the equity they need. (…)
So we have decided to create a second company which will be public and have the State as its sole shareholder. Its purpose will be to supply equity to solvent credit establishments needing it to develop their activities. These funds will be raised with the State guarantee. Of course the State will be remunerated for this equity injection. In return for this support, as for the interbank guarantee, an agreement will set the obligations of the institutions involved.
The ceiling of this guarantee is set at €40 billion.
Finally, I repeat that the French State won’t let any banking institution go bankrupt. In an emergency, the State will be able to provide its guarantee directly to the ailing institution. In this case, as was the case for Dexia, the State will take control and the management will be changed. There can’t be a rescue without those responsible being penalized for their mistakes and the State being given the means to shoulder its responsibilities. (…)
These decisions taken, we have chosen to move fast. An amending finance bill is therefore being brought before Parliament tomorrow. It will be passed before the end of the week.
Other decisions committing the whole of Europe will be taken at next Wednesday’s European Council, particularly regarding the modifying of the accounting rules applicable to the financial institutions, which are today contributing to worsening the crisis.
The State’s commitment is substantial, totalling around €360 billion. If we take account of differences in GDPs, it is comparable with Germany’s (€400 billion for the interbank guarantee and €80 billion for the recapitalization) and the United Kingdom’s (€318 billion for the interbank guarantee and €64 billion for the recapitalization).
This massive commitment is commensurate with the problem confronting us. (…)
I repeat, the greatest risk at the moment would be not to show audacity. This is what, with all the Euro Area countries, we chose to show yesterday evening. It’s what we’re doing today.
I believe that at this time there is no other reasonable choice./.