EU considering joint recapitalisation of banks

European Union governments are considering the possibility of allowing EU financial institutions to recapitalise European banks that need bolstering, Greece's prime minister said on Friday.

George Papandreou was asked at a meeting with media at the World Economic Forum whether a collective solution at an EU level to recapitalise banks that needed funds along the lines of the US TARP programme was under consideration.

"These are issues which are being seriously discussed now," he replied.

"Who is going to do this if it is necessary? Will it be the EFSF (European Financial Stability Facility)? Will it be the ECB (European Central Bank)? These are issues that are on the table."

However, Britain and the United States laid out starkly different recovery strategies at Davos on Friday, with one calling for deep spending cuts and the other warning against drastic action.

Leaders of the business and political elite gathered at the World Economic Forum were treated to back-to-back appearances by Britain's Prime Minister David Cameron and US Treasury Secretary Timothy Geithner.

But, as delegates debated how best to protect and nurture the world's tentative economic recovery, the top envoys from these two very similar debt-ridden Western economies brought very different messages.

Cameron vowed that under his leadership Britain would stick by his policy of huge spending cuts to slash its yawning deficit, despite the week's alarming growth figures, which have triggered fears of renewed recession.

"Our first priority is to kill off the spectre of massive sovereign debts," he declared. "Those who argue that dealing with our deficit and promoting growth are somehow alternatives are wrong."

Cameron urged Europe to kickstart growth by slashing regulation and boosting enterprise, rather than through stimulus spending, and said he would reduce the deficit through cutting public spending and raising retail sales tax.

"It's going to be tough, but we must see it through. The scale of the task is immense, so we need to be bold in order to build this economy of the future," he argued, stressing that many European leaders agree with him.

Geithner came with a quite different message, stressing that the United States was not ready to contemplate drastic spending cuts until the health of the recovery was assured.
"You've got to make sure that you don't hurt the recovery and take too much risk that you damage the early expansion by shifting too prematurely to substantial restraints," he told the same Davos audience.

"We're not going to let that happen. There are some people who like to move ... very quickly to do very deep cuts in spending but it is not the responsible way to do it," he said, in a question and answer session.
"It would undermine the long-term objective of making sure that we achieve a sustainable fiscal position," Geithner argued.

On Tuesday, Britain revealed that its economy slumped unexpectedly in the fourth quarter of 2010, shrinking 0.5 percent in the three months to December, after expansion of 0.7 per cent in the third quarter.
Experts put some of the blame on unexpectedly extreme winter weather, which disrupted Christmas shopping and air travel, but the dip has given ammunition to critics who argue that Cameron is cutting too much, too fast.

In Washington, President Barack Obama's administration was to get its economic scorecard later Friday, but the world's largest economy is expected to have grown 3.5 per cent in the final quarter of the year on an annual basis.

"There is much more confidence now that we've got a sustainable expansion," Geithner said, while admitting: "It's not a boom, it's not an expansion that's going to offer the possibility of a rapid employment rate."

Obama's Republican critics -- who have just formed a majority in the House of Representatives -- are demanding deep spending cuts to rein in a budget deficit expected to hit a record $1.5 trillion this year.

The annual Davos conference has attracted 2,500 key decision makers from business and politics to this snow-bound high altitude resort for four days of the world's most influential elite networking event.

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