The Economic and Financial Affairs Council of the European Union is to begin scaling back its government-backed state aid to strongly capitalized financial institutions. Weaker banks will have a little longer to get their balance sheet act together, the council announced today. In a seeming about-face, the council, which has executive abilities, declares that member states (the countries that comprise Europe) should continue to offer strong support throughout the unwinding in order to insure “risk-bearing capacity,” according to press information made available on the topic. The council is also clear that the multitude of recommendations for this action are not set in stone. In some cases countries, such as France, Germany and Spain should work to have deficits below 3% GDP by 2013. Italy and Belgium are expected to work to reach this point a year earlier, Ireland and the UK a year or more after. As signs of the recovery continue unabated, the council admits that knock-on recessions may be in the works and notes that the changes may require reversals should the economy tank again. The EU will conduct this work with an aim to revise its rescue policies in the future which will include the exploration of a corresponding EU framework for asset transfers along with the necessary safeguards. “This work should in particular explore mechanisms to disincentivize ring fencing practices, including exchange of information, enhanced coordination practices and legal provisions,” reports the guidance from Brussels. Financial institutions in the future will also be on the hook for suppling funding for upcoming bailouts, should it become necessary, especially those with activity in Derivatives. To this end, the council is encouraging the creation of a European-based trade repository. As the EU begins to unwind its role in support, the council will facilitate incentives to return to a competitive market; centralize and regularly publicize information on the progress of the wind-down; demand six-monthly assessments of the stability of the financial system from individual institutions. “The timing of exit should take into account a broad range of elements, including macro-economic and financial sector stability, the functioning of credit channels, a systemic risk assessment and the pace of natural phasing out by banks,” states one release titled: Council conclusions on exit strategies for the financial sector. Write to Jacob Gaffney.