This procedure would simply be too slow, and would not take into account the need to keep the operations running in order to maintain the functioning of the financial system. With creditors insulated against losses by the guarantee, and with the formal insolvency regime assessed to be inappropriate, we needed to find another way to ensure that losses  BIS Review 62/2008  3  for which the shareholders were responsible would not fall on the tax-payers. In order to secure this, we needed to take control of the banks concerned before capital was completely eroded. Needless to say, we found ourselves in a rather poor bargaining position against the shareholders. Fortunately, a Bank Support Act, laying out the principles for the possible actions, could be implemented quite swiftly. A special crisis management authority was also set up. Inspired by the US model, where the authorities can take control of a bank when capital falls below a certain level, this temporary crisis legislation gave the government the right to take over the shares in undercapitalised banks. The Bank Support Act also made it possible to tie conditions to the actual use of the guarantee. Thus, the main rule was that any financial support given directly to a bank would result in a proportional dilution of the original shareholders’ holdings. The Bank Support Act also laid the basis for arranging private takeovers where possible. And, not least, for the orderly winding up of unviable banks.
At the same time, unemployment in the euro area remains high, and the necessary balance sheet adjustments in the public and the private sector will continue to weigh on economic activity. This assessment is also reflected in the December 2013 Eurosystem staff macroeconomic projections for the euro area, which foresee annual real GDP declining by 0.4% in 2013 before increasing by 1.1% in 2014 and 1.5% in 2015. Compared with the September 2013 ECB staff macroeconomic projections, the projection for real GDP growth for 2013 has remained unchanged and it has been revised upwards by 0.1 percentage point for 2014. The risks surrounding the economic outlook for the euro area are assessed to be on the downside. Developments in global money and financial market conditions and related uncertainties may have the potential to negatively affect economic conditions. Other downside risks include higher commodity prices, weaker than expected domestic demand and export growth, and slow or insufficient implementation of structural reforms in euro area countries. BIS central bankers’ speeches  1  According to Eurostat’s flash estimate, euro area annual HICP inflation increased in November 2013 to 0.9%, from 0.7% in October. The increase was broadly as expected and reflected, in particular, an upward base effect in energy prices and higher services price inflation. On the basis of prevailing futures prices for energy, annual inflation rates are expected to remain at around current levels in the coming months. Over the medium term, underlying price pressures in the euro area are expected to remain subdued.