Troubled Franco-Belgian bank Dexia
A French Finance Ministry source said Thursday an interim agreement to guarantee Dexia's financing would be signed within days and would be based on the deal reached in October.
That echoed comments by Belgian Finance Minister Didier Reynders, who said Wednesday he hoped to reach an agreement with the European Commission about Dexia's restructuring plan in the coming days.
Belgium, which is expected to be liable for 60.5 percent of the 90 billion euros (77 billion pounds) in guarantees that it, France and junior partner Luxembourg said last month they would provide, has now been hit by the euro zone debt crisis.
With national debt totalling 100 percent of GDP and without a formal government since elections almost 18 months ago, Belgium saw the risk premium on its bonds over 10-year German Bunds reach its highest level since the introduction of the euro Thursday.
France, which is due to provide 36.5 percent of the guarantees, leaving Luxembourg with the remaining 3 percent, has its own concerns on debt, with credit rating agency Fitch saying Wednesday that the country would have limited room to absorb any new shocks to its public finances without endangering its AAA status.
While it continues to wait for the guarantees to be finalised Dexia is making use of the Emergency Liquidity Assistance (ELA) facilities from the Belgian national bank and other national banks (within the euro zone), the banking source said Thursday.
An analyst with a major European bank said the fact Dexia was tapping national central banks for liquidity via the European Central Bank network showed how bad the situation had become, amid a more general freezing up of liquidity in the interbank lending market.
The emergency window of the ECB ... is very expensive, so it shows that the liquidity situation is very dramatic, he said, asking not to be named.
At some point you run out of unencumbered assets to post at the ECB and then the only way to fund yourself is via the ELA, which is clearly not a good sign, he said.
Facing the threat of collapse, Dexia agreed in October to the nationalisation of its Belgian banking division and the 90 billion euros in state guarantees offered by France, Belgium and Luxembourg after intense through-the-night negotiations.
But the details of the guarantee agreement have not been finalised, giving rise to renewed pressure on Dexia this week.
The European Commission needs to approve any state support to companies under EU competition and state-aid rules.
Dexia's share price rose by as much as 34 percent on Thursday to a high of 0.36 euros, but that is far below its year high of 3.4 euros.
(Additional reporting by Dan Flynn and; Jean-Baptiste Vey in Paris; Editing by Will Waterman and Greg Mahlich)