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EU will choose new regulator

THE European Union's 27 central banks will jointly choose the head of the region's new economy watchdog, member states said yesterday, scrapping a previous suggestion that the new regulator position would automatically be filled by the European Central Bank's president.

In a draft statement, EU leaders also warned governments to stay alert to new moves to shore up the financial sector because banks are still coping with a "challenging" trading climate where credit flows are constrained.

But they said economic stimulus measures by governments and central banks are working by cushioning the worst effects of the downturn and helping to safeguard jobs.

They said these paved the way toward "a sustainable economic recovery" and that no new stimulus is needed right now.

The leaders approved an overhaul to the EU's financial monitoring aims to help prevent a repeat of the crisis that has dragged their economies into the worst downturn since World War II.

The EU will now set up a European Systemic Risk Board to give early warning of threats to financial stability, such as the wave of securitized -- or repackaged -- debt that has helped punch huge holes in banks' balance sheets.

This soothes British concerns that the euro zone's central bank would take charge of warning -- and ordering -- national governments outside the euro to take action over economic problems. Britain is one of the 11 EU countries that doesn't use the euro.

Member states also backed plans for three new financial watchdog agencies to watch over banks, insurers and financial markets, saying they should have "binding" powers to overrule national regulators when they can't agree on supervising the 40 or so major cross-border banks that operate across several nations.

But leaders failed to agree how countries would bail out such a bank, saying the EU agencies should not force countries to rescue banks with taxpayers' money.

The EU's executive commission will have to iron out this apparent contradiction when it proposes a law to set up the agencies later this year.


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