EU leaders try to fix long-term economy problems

June 17, 2010 7:24:31 AM PDT
BRUSSELS (AP) - European Union leaders are using a Thursday summit to try to fix deep, long-standing problems with their economy by forging tougher rules to rein in government overspending - and prevent another debt crisis. Though the summit's formal focus is on long-term solutions, the 27 EU leaders also face more immediate worries about potential losses hitting European banks and continuing speculation about market pressure pushing Spain to seek financial help.

Spain has said it will soon publish results of a review of how much its banks could lose if the economy worsens and house prices tumble further, in an effort to calm market worries that the government may ultimately have to rescue local banks.

Diplomats say most European governments - except Britain and the Czech Republic - are also in favor of publishing banking "stress tests" for the first time, as the U.S. did in 2009 to show how much capital the country's 19 biggest banks needed to raise to cope with more losses.

"We see that the markets are unsettled and that confidence between banks is tattered," German Finance Ministry spokesman Michael Offer told DAPD news agency. "Transparency could be helpful as a stabilizing factor."

He said EU finance ministers would decide the details on how and when the tests would be done by national bank supervisors.

EU nations are trying to calm volatile markets worried about Europe's soaring debts - both public and private. Greece needed a bailout from EU governments and the International Monetary Fund to avoid an embarrassing default in May.

A massive "shock and awe" euro750 billion ($1 trillion) financial rescue package for other indebted countries has failed to halt the euro's slide in recent weeks as markets eye wider problems across Europe: a banking system that may not have fully owned up to losses from the 2008 crisis and the prospect of slow economic growth for years ahead.