Study Details Graft in European Union

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S.&P. Cuts European Union’s Credit Rating

The agency removed the bloc’s top-level AAA long-term credit rating, lowering it one level to AA+, citing “the overall weaker creditworthiness of the E.U.’s 28 member states.”

On Friday afternoon, S.&P. issued a clarification, emphasizing that the downgrade applied only to the European Union’s borrowing as a supranational body and that the move had no effect on individual member states.

The timing of the announcement was inauspicious, coming on the last day of a meeting of European Union officials and heads of state, whose capstone achievement was an agreement for the creation of a European system for winding down failed banks. That plan, despite limits that critics have been quick to point out, was supposed to demonstrate the bloc’s commitment to building a banking union, locking member states into an ever-tighter economic embrace.

S.&P. was apparently unconvinced. “We believe the financial profile of the E.U. has deteriorated, and that cohesion among E.U. members has lessened,” it said in explaining the downgrade. The firm also pointed to disputes over the European Union’s budget and to Britain’s plan for a referendum on remaining in the European Union as signs that solidarity was under strain.

The European Union’s borrowings of 56 billion euros, or $76 billion, are separate from those of member states and from finance programs like the European Financial Stabilization Mechanism and the European Atomic Energy Community. The ratings agency said 80 percent of the borrowing was currently extended to Portugal and Ireland, a legacy of the sovereign bailouts.

The European Commission, the executive arm of the union, took umbrage. “The commission disagrees with S.&P. that member states’ obligations to the budget in a stress scenario are questionable,” Olli Rehn, the commissioner for economic and monetary affairs, said in a statement. “All member states have always, and also throughout the financial crisis, provided their expected contributions to the budget in full and in time.”

S.&P. denied any link between the downgrade and the announcement of the banking resolution deal. Rather, it said it was a result of the falling credit scores of member states since it first put the bloc’s rating on review at the beginning of 2012 and delays and debate over the European Union’s budget.

Christian Schulz, an economist at Berenberg Bank in London, wrote in a note that the ratings downgrade “is largely symbolic as the E.U., at least in the grand scheme of things, does not borrow much.”

Investors, for their part, chastened by the ratings agencies’ blessing of financial dross during the credit bubble, have ignored many S.&P. decisions in recent years, and there was no market impact on Friday.

European Automakers Hope Technology Can Lure Younger Buyers

With sales at their lowest level in two decades, auto industry managers gathering for the Frankfurt auto show next week will be doing their best to focus on shiny new technologies rather than on the European car market, which, in contrast to the thriving market in the United States, is in a terrible state.

The buzz at the show, which opens to the public on Wednesday, is likely to be about new battery-powered cars and vehicles that are able to drive themselves. Those are more cheerful topics than auto sales, which have fallen 20 percent in Western Europe since the financial crisis began in 2008 and are at their lowest level since 1993.

Only European carmakers with substantial sales in the United States or China — BMW, Mercedes and Volkswagen — have escaped relatively unscathed.

The emphasis on technology is more than just a distraction from market misery. Carmakers are desperate for ways to excite young buyers, who are increasingly apathetic about car ownership. The push toward cars that are rechargeable and loaded with software is part of a search to make automobiles as essential to young adults as smartphones. Otherwise, there is a big risk that auto sales may never reach their previous peaks even if the European economy keeps improving.

“There are products that are hipper for young people than cars,” said Ferdinand Dudenhöffer, a professor at the University of Duisburg-Essen in northern Germany and an industry analyst. “The car companies are still using the old marketing pitch — more horsepower. That doesn’t speak to young people any more.”

Interest in battery-powered cars has faded after disappointing initial sales, but it could pick up again this year with the market introduction of the BMW i3. The vehicle has perhaps the most revolutionary new design by an established carmaker in years, not only because of its electric propulsion system but also because the passenger compartment is made of carbon fiber rather than steel, to save weight and extend the distance the car can travel between charges.

There is also speculation that Continental, a German parts supplier, will announce an alliance with Google next week to further develop self-driving cars. A spokesman for Continental, which will hold a news conference at the auto show on Tuesday, declined to comment.

As such initiatives illustrate, it is no longer enough for a car to take a person from one place to another without breaking down. A car must be green, so the owner does not feel guilty driving it. And being in the car should not interrupt the perpetual connectivity that many younger people take for granted.

BMW is going to extremes to make the i3 the most carbon-neutral car on the road. A wind turbine outside the BMW factory in Leipzig provides power for the i3 assembly line, and the carbon fiber for the passenger compartment comes from a factory in Washington State that uses hydropower. And of course the i3 itself has no tailpipe emissions (unless buyers choose a range-extender version that has a small gasoline motor).

With a price of about $42,000 in the United States, the i3 will be an option only for higher-end buyers when it arrives in showrooms by the middle of next year, though government incentives could lower the price by more than $7,000. But since BMW’s clientele already tends to be wealthy and urban, the company may be in a better position than other carmakers to find a market.

“What the mobile phone did for communication, electric mobility will do for individual mobility,” Norbert Reithofer, the chief executive of BMW, said during an introduction event for the i3 in New York in July.

Despite Mr. Reithofer’s enthusiasm, no one expects battery-powered cars to sell in large numbers soon, and certainly not to solve the industry’s deep-seated problems. About 77,000 electric vehicles were sold in the United States in the last 12 months, far more than in any other country, according to Roland Berger Strategy Consultants in Munich. That number, which includes cars like the Chevy Volt that have range-extender motors, is tiny compared with the 14.5 million cars of all types sold in the United States last year.

Modest expectations may also be in order for self-driving cars. Cars are coming on the market that can relieve drivers of some of the tedium of driving in traffic or on the highway. The latest edition of the Mercedes-Benz S-Class, introduced this year, can steer and brake autonomously in traffic or on the autobahn.

DealBook: Campbell Soup to Sell Some European Operations

European Regulator Finds Little Risk in Diabetes Drugs

Regulators in Europe have concluded that there was little evidence that widely used drugs to treat Type 2 diabetes could cause pancreatic inflammation or pancreatic cancer, a finding that might reassure patients while also removing a potential sales threat for Merck and some other drug companies.

“Presently available data do not confirm recent concerns over an increased risk of pancreatic adverse events with these medicines,” the European Medicines Agency said in a news release on Friday.

Both the European agency and its American counterpart, the Food and Drug Administration, have been reviewing the safety of a big class of drugs that includes Merck’s Januvia and the drugs Byetta, Bydureon and Onglyza, which are sold by Bristol-Myers Squibb and AstraZeneca.

The F.D.A. has not yet released its conclusions.

The concerns have been raised over the last few years mainly by Dr. Peter Butler, the chief of endocrinology at the University of California at Los Angeles. Dr. Butler has been hailed by some drug safety watchdogs as a hero for standing up to the drug companies but criticized by many diabetes experts as a zealot.

In his latest study, the one that triggered the reviews, Dr. Butler and colleagues examined the pancreases from 34 organ donors, some with diabetes and some without, who had died from causes other than diabetes. They found that the pancreases of the people who had used Januvia or Byetta tended to have more signs of inflammation and precancerous cellular changes than the pancreases from diabetics who had not taken those drugs and those from nondiabetics.

But the European Medicines Agency said Friday that the study had “a number of methodological limitations and potential sources of bias.” The donors who had taken Januvia or Byetta were older and had diabetes for far longer than the diabetics who had not taken the drugs, making it difficult to draw conclusions on the possible effects of the drugs.

The agency said the prescribing information for the drugs already contained warnings about pancreatic inflammation, known as pancreatitis. It said clinical trials had shown no increased risk of pancreatic cancer, though that the trials were too small to draw firm conclusions. It said “some uncertainties remain’’ regarding the long-term effects of the drugs, but much larger trials are under way to answer those questions.

The drugs involved, which the F.D.A. calls incretin mimetics and the European agency calls GLP-1-based therapies, effectively increase the body’s levels of a hormone called glucagon-, like peptide-1, which helps control blood sugar levels. Some of the drugs, known as GLP-1 agonists, mimic the effect of the hormone, while others, known as DPP-4 inhibitors, slow the breakdown of the body’s own hormone.

Collectively, the drugs had more than $9 billion in global sales last year, led by Merck’s Januvia and a related drug, Janumet, which together had sales of $5.7 billion. Other drugs include Victoza from Novo Nordisk and Tradjenta from Eli Lilly and Boehringer Ingelheim.

European Union Offers Berlin Compromise on Bank Proposal

Speaking in London, Michel Barnier, the European Union’s commissioner overseeing financial services, said there was “room for maneuver in the negotiation,” and tried to head off criticism from Germany that the European Commission, the executive arm of the 28-nation bloc, was using the proposal to make a power grab.

“I don’t have any ideology in the issue,” Mr. Barnier said. “It’s not that the Commission wants to have a big role in the resolution process — if someone would find and suggest to us a better solution we would be happy to look at it.”

The resolution fund is one pillar of the proposed banking union that policy makers see as an important part of the response to the financial crisis that has gripped the euro zone.

One question, Mr. Barnier said, was, “Should we be treating banks that are purely regional and have no cross-border activities in exactly the same way as big international banks?”

“That’s something that we can maybe look at further in the course of negotiations,” he added. Germany, whose approval will be needed for the resolution mechanism, has more than 400 local savings banks, which are economically and politically important.

Under Mr. Barnier’s plans, outlined Wednesday, the European Central Bank would signal when a lender in the euro zone, or in a country participating in the banking union, was in severe financial difficulties. With representatives of national authorities, the E.C.B. and the Commission, a board would undertake preparatory work before the Commission would then decide whether and when to place a bank into resolution.

That idea provoked immediate opposition from Berlin, and more evidence of discord in Germany surfaced Friday in a letter to Mr. Barnier from Finance Minister Wolfgang Schäuble. “The proposal published by the Commission regrettably envisages too high a degree of centralization with regard to the boundaries” of the existing E.U. law, the letter said, according to Reuters.

“The proposal does not match the current legal, political and economic realities and would create major risks,” Mr. Schäuble wrote, adding that the transfer of powers to the Commission was not backed by E.U. treaties.

Mr. Barnier disputed that, arguing that his proposal was the best solution available without changing E.U. treaties. He said that if the treaties were amended, the European Stability Mechanism, the euro zone’s permanent bailout fund, might take over the power to decide when to wind down banks.

One E.U. official, speaking on condition of anonymity owing to the sensitivity of the issue, said that agreement with national governments on the resolution fund was possible by the end of the year — but conceded that changes would likely be made. Most officials expect the role of the Commission to be pared back, but for legal reasons there are few alternative bodies that could make the decision to wind down a bank, they say.

In his speech in London on Friday, Mr. Barnier also warned against any effort by Britain to win special exemptions from E.U. single market rules for its financial services sector, the City of London.

“By definition,” he said, “there can’t be two single markets: one for financial services and one for the rest of the economy. One for the City, and one for the rest of the E.U.

“Repatriating full policy responsibility for financial services would mean leaving the single market as a whole and de facto the E.U.,” Mr. Barnier said, adding: “I believe the U.K. would lose out on many of its own interests if it chose that path.”

Prime Minister David Cameron has promised to renegotiate British ties with the European Union and some lawmakers from his Conservative party have called for new powers that would prevent Britain being outvoted on any new legislation on financial services.

But Mr. Barnier rejected that idea.

“It would not work,” he said. “If you give a veto to one country you have to give it to others and then we no longer have an internal market,” he said. “Our interest is in having a coherent single market with intelligent rules that apply everywhere.”

European Union Proposes Plan for Failing Banks

BRUSSELS — European Union officials announced an ambitious proposal on Wednesday for a uniform way to deal with failing banks in the region that would include central decision-making and an emergency fund raised from Europe’s banks.

The plan is meant to reduce the chances that struggling governments end up taking their states deeper into debt to save their banking systems, only to face high sovereign borrowing costs that would threaten the stability of the euro currency union.

“We cannot eliminate the risk of future bank failures,” José Manuel Barroso, the president of the European Commission, said in a statement. But the proposal, he said, helps ensure that “it should be banks themselves — and not European taxpayers — who should shoulder the burden of losses in the future.”

The commission, the European Union’s executive body, would assume significant new power under the system, something that makes some countries, including Germany, skeptical. The plan would require approval by a majority of European Union governments and by the European Parliament before it could go into effect.

To be sure, there would be limits to the power of the new centralized system. It could not, for example, order the closure of a bank without permission of the host government if doing so would result in that country’s taxpayers footing some of the bill. And the system would not have access to full amount of the emergency fund for more than a decade.

Even so, analysts have described the plan as one of the most significant transfers of national sovereignty to Brussels yet proposed in the name of securing the euro. The concern of Germany and other countries about giving such authority to the European Commission could bog the proposal down in months of difficult negotiations.

The proposed bank-failure program, known as the Single Resolution Mechanism, was conceived as part of a broader European banking union whose other provisions would include a single banking supervisor and an agreement to impose any losses mainly on a bank’s creditors and shareholders, rather than taxpayers.

The Single Resolution Mechanism would rely on the European Central Bank to signal when a financial institution in the euro area was facing severe difficulties.

A resolution board, supported by a staff of around 300 and made up of representatives from the central bank, the European Commission and member states of the union, would then make a recommendation on how to shut down or shrink a bank. The commission would reserve the right to make a final decision.

The board also could draw on the shared fund to help shut down or radically restructure failing lenders after creditors and shareholders have borne some losses. European Union officials want the size of the fund to be about 70 billion euros by the time it is fully financed by 2025, with money coming from levies on banks.

But the slow buildup of the fund could mean that if bank crises arise in the interim, the new system would be reliant on national funds, and possibly even public money from other euro zone countries. Tapping taxpayer money to bail out other countries’ banks is something that Germany has consented to, but only as a last resort.

On Tuesday, Wolfgang Schäuble, the German finance minister, insisted, as he has before, that changes to European Union treaties would be necessary before the Single Resolution Mechanism could go fully into force. Because treaty changes would be laborious and far from certain, Mr. Schäuble is essentially arguing for a potentially long delay to the banking effort.

But France has called for swift adoption of the plan.

During a news conference on Wednesday to present the plan, Michel Barnier, the European commissioner overseeing financial services, sought to underline the need for rules ensuring the stability of European banks, saying that the sector drove investment in a far larger proportion of the region’s economy than is the case in the United States.

“We’re not going to get diverted by lobbying,” Mr. Barnier said.

European Central Bank Commits to Low Rate

FRANKFURT — The European Central Bank said Thursday it would keep interest rates low “for an extended period of time,” an unprecedented commitment for an institution that had steadfastly refused to offer guidance on its future policy.

With the promise of easy money, Mario Draghi, the president of the E.C.B., offered more certainty to investors at a time when tensions in the euro zone are rising again. So-called forward guidance is considered one of the tools available to central banks, but one the E.C.B. had never used before.

The E.C.B. kept its main rate at a record low of 0.5 percent, as expected. The relative calm in the euro zone has been threatened in recent weeks by a political crisis in Portugal, a rise in the risk premium that investors demand on bonds issued by Italy and other troubled countries, and reluctance by political leaders to take bold steps to build a stronger currency union.

The commitment to keep rates low may be intended to amplify the effect of the current low rate by reassuring investors that they can count on easy money for the foreseeable future. The statement may also be intended to counteract any effect in Europe from expectations that the U.S. Federal Reserve may gradually begin to tighten its monetary policy.

Mr. Draghi has in recent weeks stressed that policy makers were ready to take action if needed, but he and other members of the governing council have few obvious options left to stimulate the slumping euro zone economy.

“The bank has nothing more it can do within its institutional framework to help return the euro land economy to prosperity,” Carl Weinberg, chief economist at High Frequency Economics in Valhalla, New York, wrote in a note to clients Wednesday.

Mr. Draghi has often stressed that E.C.B. anti-crisis measures could only buy time for political leaders to take action, for example by removing barriers to entrepreneurship in countries like Italy or cooperating more closely to fix ailing banks.

But now that fear of a euro zone breakup has ebbed, political leaders seem to have lost the will to address flaws in the currency union. An agreement by national leaders last month on a so-called banking union, designed to make the euro zone less prone to financial crises, fell short of what economists say is needed to deal with weak lenders and restore the flow of credit.

In recent days market borrowing costs for Italy and Spain have risen again, after a political crisis in Portugal raised questions about whether governments will be able to withstand public discontent about budget cutting and joblessness.

Further increases in government borrowing costs could test whether the E.C.B. can deliver on its promise last year to buy bonds of troubled countries if needed to eliminate fear of a euro zone breakup. Some analysts doubt whether the program could be deployed quickly in a crisis, since it requires countries to request help and agree to economic reforms and other conditions.

The E.C.B. appears unwilling to take more radical steps to stimulate the economy, such as massive, broad-based bond purchases similar to the quantitative easing used by the U.S. Federal Reserve or Bank of England. Already, the E.C.B. faces a legal challenge in Germany’s Constitutional Court to the bond buying program and is probably reluctant to further alarm Germans fearful that they will wind up paying for problems in Italy and Spain.

The E.C.B.'s job is further complicated by signs that the Federal Reserve could begin to gradually roll back its economic stimulus in the United States. Expectations of tighter monetary policy in America have rattled financial markets in Europe, and Mr. Draghi may try to reassure investors that the E.C.B. is a long way from going in the same direction.

“President Draghi might note that contrary to market expectations the E.C.B. has not followed the strategy pursued by the Federal Open Market Committee in recent years,” economists at Royal Bank of Scotland wrote in a note to investors earlier this week, referring to the Federal Reserve’s policy-making panel.

European Ministers Clear Trade Deal

The breakthrough, which came after 13 hours of tense talks, should enable Britain to hail the start of the trans-Atlantic trade discussions when the leaders of the Group of 8 biggest economies hold a summit meeting on Monday in Northern Ireland.

“The formal launch of negotiations between the world’s two largest trading blocs is now imminent,” Vince Cable, the British business secretary, said in a statement shortly after the deal was announced. “Achieving an agreement is in all our interests and would deliver a much-needed boost to the economies of all involved.”

The divisive issue of shielding films, TV shows and other audiovisual services from competition could be debated again at a later stage, and that promises more wrangling ahead between European nations over what to offer the United States in exchange for lower tariffs and streamlined regulations.

Although the French position could be scaled back, the fact that the other 26 trade ministers in the European Union acceded to France’s demand could make negotiations with the United States that much more difficult, given the protectionist impulses on both sides of the Atlantic that are likely to come into play.

A trade pact would aim to lower barriers between the world’s two biggest trading partners. But before formal talks can start, the European Union’s 27 trade ministers needed to reach a unanimous deal to give the European Commission, the bloc’s executive arm, the formal authority to start the negotiations.

The decision in Luxembourg was a preliminary victory for France, which fought hard for months to protect Europe’s so-called cultural exception, which is, in practice, a thicket of quotas and subsidies for audiovisual productions that promote locally and regionally produced content.

“We are satisfied because we have the exclusion from the mandate for everything that is to do with audiovisual,” Nicole Bricq, the French trade minister, told a news conference. The guarantee was “written in black and white” in the agreement, she said.

The European Union, which is plagued by low growth and high unemployment, broadly favors a trade pact with the United States to bolster the economy and generate new jobs. But the drawn-out negotiations in Luxembourg were a stark reminder of how the bloc’s members still are reluctant to set aside national priorities and to make collective decision-making a reality.

The main sticking point on Friday was France’s demand to exclude audiovisual services, including future digital services, from the talks.

Britain, along with countries including Spain and the Netherlands, was concerned that such an exclusion would prompt the United States to require protections of its own.

The exclusion of audiovisual material from a trade deal would especially disappoint American technology and media companies, including the online movie distributor Netflix, which want easier access to European markets.

The deal that emerged was a classic European accommodation allowing a flagship initiative — a trans-Atlantic trade pact — to move forward while leaving decisions on the thorniest questions, like how to manage digital services, for a later date.

The compromise leaves the European Commission with the option to make a proposal, once the talks with the United States are under way, to use audiovisual services as a bargaining chip so long as all 27 member states agree that the advantages are sufficiently attractive.

“There is no carve-out on audiovisual services,” Karel De Gucht, the European Union trade commissioner who will lead the negotiations with the United States, told a news conference.“We are ready to discuss it with our American counterparts and to listen to their views on this issue.”

In a sign of the bitterness that nearly led to the collapse of the talks on Friday, Ms. Bricq, of France, accused some member states of pandering to American demands to keep the audiovisual industries as a bargaining chip.

And, earlier in the day, in a thinly veiled reference to the European outcry over recent disclosures that the National Security Agency in the United States had gained access to online data from many of the biggest Internet companies, she added that “current events unhappily remind us” of American influence over the online world.

How much progress Europe and the United States can make is an open question. Tariffs are already low, and the main goal — harmonizing regulations — is likely to pose a huge challenge for negotiators.

There are also questions about their differences over regulations on a host of industries, including new technologies, car safety, pharmaceuticals and financial derivatives.

China Divides European Union in Fight Over Tariffs

HONG KONG — Adroitly alternating the threat of a trade war with the lure of its huge import market, China appears to have driven a deep wedge between Germany and the rest of the European Union. And it may even have caused a rift within the German business world.

As Chinese and European trade officials stare each other down over next week’s scheduled imposition of big tariffs on the $27 billion worth of solar panels China sells to Europe each year, Germany has come down on China’s side.

Notably, Berlin is backing Beijing, even though Europe’s biggest producer of solar equipment, SolarWorld, is a German company that desperately wants the European Union to impose tariffs on the Chinese equipment. Unless the bloc backs off under German pressure, tariffs of up to 50 percent would go into effect June 5, to punish China for the ostensible “dumping” of solar panels at below cost in Europe.

“Europe cannot succumb to blackmail — dumping is illegal, and the E.U. is obliged to defend itself by applying the international trade law,” said Milan Nitzschke, a spokesman for SolarWorld and the president of ProSun, a lobbying group for the European solar energy industry.

But many other German companies, which rely more heavily than other European manufacturers on China as a significant market for their exports — whether Volkswagen cars or Siemens factory equipment or various other goods — fear that the dispute over solar panels could lead to an all-out trade war with China, which would be disastrous for their businesses. So far, the German government appears to agree.

And little wonder. Germany is China’s most important trading partner in Europe and China is Germany’s leading partner in Asia. The Federation of German Industry estimates that one million German jobs are dependent on exports to China. Of those, the German solar industry has about 99,000.

For half a century, Germany has been one of the most loyal and enthusiastic supporters of European unity. And since the advent of the European Union in 1992, Berlin has advocated giving Brussels greater scope in the range of issues it handles. But the solar tariff showdown illustrates the way domestic priorities can sometimes trump pan-European loyalties.

Chancellor Angela Merkel of Germany played host last weekend to Prime Minister Li Keqiang of China. More than a dozen trade agreements were signed, including between VW, Siemens, BASF and their Chinese partners, all supporting further expansion for German industry in the Chinese market and further investment by the Chinese in Germany. Special privileges that China offered German companies in its agricultural and recycling industries were clearly aimed at trying to win Berlin’s support.

After her meeting with Mr. Li, Ms. Merkel told reporters on Sunday that her government would lobby against the solar tariffs, saying the situation was “rather complicated.”

“Germany will do everything possible to resolve the conflicts that we have in trade,” Ms. Merkel said, “through as many discussions as possible to prevent it from falling into a sort of conflict that ends in the raising of tariffs from both sides.”

Germany’s economics minister, Philipp Rösler, said Monday that Germany had told the European Commission in Brussels that it was voting against the imposition of preliminary tariffs on Chinese solar panels. While the commission routinely consults member countries on preliminary tariffs, in the past that has tended to be more of a formality, and opposition has been infrequent.

But on Tuesday, a trade official in Europe with direct knowledge of the matter said it appeared that a majority of the governments were officially opposed to preliminary tariffs on Chinese solar imports. And yet, the European commissioner for trade, Karel De Gucht, could still go ahead on June 5 and impose the preliminary duties without any further approvals. That deadline was established at the opening of the commission’s investigation in September.

Whether Mr. De Gucht proceeds with the preliminary duties remains to be seen. But he “will not be intimidated in any way” and “will not bend to external pressure,” Mr. De Gucht’s spokesman, John Clancy, said at the commission’s daily news conference Tuesday.

Preliminary tariffs, which would last six months, in the past have tended to be imposed as a negotiating ploy before the European Commission decides whether to impose so-called final tariffs that last for five years. A voting majority of member nations could overturn the preliminary tariffs, although such a move would be unprecedented.

Melissa Eddy reported from Berlin. James Kanter contributed reporting from Brussels and Chris Buckley from Hong Kong.

European Leaders Huddle on Youth Unemployment

PARIS — President François Hollande of France called Tuesday for “urgent action” to tackle alarmingly high rates of youth unemployment across the European Union, saying that mounting disillusionment among the “post-crisis generation” threatened the very future of the European project.

“We need to act quickly,” Mr. Hollande told a gathering of government officials, business leaders and students in Paris. “In this battle, time is the decisive factor.”

Mr. Hollande spoke ahead of a series of meetings between French and German officials this week in preparation for a summit meeting of European leaders at the end of June, where youth unemployment is expected to top the agenda. The subject is also expected to figure prominently at a meeting here Thursday between Mr. Hollande and the German chancellor, Angela Merkel.

Nearly six million people under the age of 25 are unemployed across the European Union — nearly one quarter of the total, according to Eurostat, the Union’s statistical office. Youth jobless rates are now roughly twice the national average in many of the Union’s 27 member states, with the figures reaching as high as 60 percent in countries like Greece and Spain, which have been hard hit by austerity-driven cuts to social services and other benefits.

Economists say the extraordinarily high rates are in part a result of the general economic slump across the region, but are also a consequence of inflexible labor market rules that make entry into the work force particularly difficult for young people.

In recent weeks, German officials have spearheaded a series of bilateral agreements with countries like Spain and Portugal aimed at helping more young people from those countries enter the work force or to receive vocational training. Discussions about a similar agreement with France are continuing, people with knowledge of the talks said.

Those agreements, while still short on details, are being seen as part of a broader blueprint for a pan-European plan to create jobs and apprenticeships for young people across the Union.

Mr. Hollande said Tuesday that the plan would rest on three pillars: easing the access to credit for small and midsize companies; developing new job-training and apprenticeship programs; and increasing the geographic mobility of young people by offering money for language training and moving costs.

Initial financing for the plan would come from a pool of roughly €6 billion, or $7.7 billion, that has already been earmarked for this purpose from the European Investment Bank.

The European youth jobs initiative is expected to be ready in time for a gathering of the Union’s ministers July 3 in Berlin.

Mr. Hollande’s call to action was echoed by other European officials in attendance at the conference, which was held before a packed hall of university students from France’s prestigious Institut d’Études Politiques de Paris, or Sciences Po.

“We have to rescue an entire generation of young people who are scared,” said Enrico Giovannini, Italy’s new labor minister. “We have the best-educated generation and we are putting them on hold. This is not acceptable.”

Joblessness among those aged 15 to 24 in Italy is above 38 percent, according to Eurostat, on par with the rate in Portugal, which has also adopted wrenching changes. Youth unemployment is much lower in Germany and Austria, below 8 percent in both cases, a reflection both of their stronger economies as well as their centuries-old apprenticeship systems, which offer paid vocational training to students while they are still in high school.

Ursula von der Leyen, Germany’s labor minister, emphasized the need to bring to bear the resources of the European Investment Bank, based in Luxembourg, to encourage companies to invest and create jobs.

“Many small and mid-sized companies, which are the backbone of our economies, are ready to deliver, but they need capital,” Ms. von der Leyen said, noting that small firms still faced “exorbitant” interest rates from private-sector banks that remain reluctant to lend. “We want to break this vicious circle,” she said.

Werner Heyer, head of the European Investment Bank, said the deepening youth unemployment crisis, alongside obstacles to cross-border lending within the euro zone, represented the region’s two “megaproblems.” But he cautioned that politicians would be mistaken if they believed that the European bank’s resources alone would be enough to solve the unemployment problem.

“Such expectations of the bank are beyond the horizon,” Mr. Heyer said. “There is no quick fix; there is no grand plan.”

European and Japanese Central Banks Pledge Support, Boosting Shares and the Dollar

ECB Executive Board member Joerg Asmussen said on Monday the policy would stay as long as necessary. On Tuesday, BOJ board member Ryuzo Miyao said it was vital to keep long- and short-term interest rates stable.

Yields on U.S. Treasuries surged to their highest levels in over a year as prices skidded. A strong consumer confidence report underscored the notion that the Federal Reserve could soon trim its bond-buying program.

"The vicious selling once again materialized after the much-stronger-than-expected consumer confidence report," said Cantor, Fitzgerald Treasury strategist Justin Lederer.

Yields have jumped since Fed Chairman Ben Bernanke said on Wednesday that the U.S. central bank may decide to decrease its bond purchases gradually in the next few policy meetings if data shows the economy is gaining steam.

"The path of least resistance is higher yields," said Sean Simko, portfolio manager at SEI Investments.

Benchmark 10-year notes fell more than a point to 96-7/32 while their yields, which move inversely to price, soared to 2.17 percent from 2.01 percent on Friday. Ten-year yields have surged from 1.61 percent at the beginning of May as optimism about the economy has grown.

Thirty-year bonds fell more than two points in price while their yields rose to 3.33 percent, the highest level since March, and up from 3.18 percent on Friday.

Both the 10-year notes and 30-year bonds are on track for their worst monthly loss since December 2009.

U.S. STOCKS, DOLLAR RECOVER

U.S. stocks recovered from recent weakness, propelling the Dow to finish at yet another record closing high.

The Dow Jones industrial average gained 106.29 points, or 0.69 percent, to end at a record 15,409.39. The Standard & Poor's 500 Index rose 10.46 points, or 0.63 percent, to 1,660.06. The Nasdaq Composite Index climbed 29.74 points, or 0.86 percent, to close at 3,488.89.

The dollar rebounded against the euro and yen after data on U.S. consumer confidence and home prices suggested the world's largest economy was on a steady road to recovery.

The Fed's stimulus program is viewed as negative for the greenback because it floods the market with dollars.

A measure of U.S. consumer confidence rose in May to its highest level in more than five years. That private-sector report followed data showing single-family home prices rose in March, with their best annual gain in nearly seven years.

Higher Treasury yields have also boosted the appeal of dollar-denominated investments.

DOLLAR RISES AGAINST YEN AND EURO

The U.S. dollar rallied against the euro and yen as the stronger-than-expected U.S. economic data underscored views the Fed could reduce its bond purchases in coming months.

Against the yen, which tumbled broadly, the dollar rose 1.2 percent to 102.09 yen, rebounding from a two-week low of 100.68 set on Friday. The dollar rose to a 4-1/2-year high of 103.73 yen last week.

The euro rose 0.6 percent to 131.24 yen, pulling away from Thursday's trough of 129.94 yen.

The safe-haven Swiss franc fell, down 1.1 percent against the dollar at 0.9740 franc and down 0.6 percent against the euro at 1.2533 francs.

Currencies such as the yen and the Swiss franc, which rose sharply last week after a recent sell-off in stock markets, typically gain in times of financial uncertainty.

The dollar index, which measures the greenback versus a basket of currencies, rose 0.6 percent to 84.172.

Gold fell 1 percent as the stock market rally diminished bullion's safe-haven appeal. Strong buying of physical bullion, however, briefly reversed gold's fall.

Spot gold was down 1 percent to $1,380.81 an ounce by 3:25 p.m. EDT (8:25 p.m. British time), after trading as low as $1,373.14.

U.S. Comex gold futures for June delivery settled down $7.70 at $1,378.90 an ounce.

Among other precious metals, silver was down 1.7 percent to $22.25 an ounce. Platinum rose 0.6 percent to $1,455.74 an ounce, while palladium gained 2.1 percent to $751.22 an ounce.

Brent crude oil rose on increased Middle East risk and as stocks rallied. Brent crude oil for July rose $1.61 to $104.23 per barrel while U.S. crude rose $0.95 to $95.10 per barrel.

The promise of monetary support from the European and Japanese central banks was reinforced as French, German and Italian governments urged action to tackle youth unemployment. [ID:nL5N0E911M] Youth unemployment in countries like Greece and Spain has risen to 60 percent. [ID:nL3N0DY1IW]

In Europe, the broad FTSE Eurofirst 300 index closed up 1.3 percent at 1,246.44, while MSCI's world equity index rose 0.5 percent, reversing four days of losses.

Japan's Nikkei stock index, which last week reached a 5-1/2-year high before dropping 7.3 percent on Thursday, steadied on Tuesday, ending 1.2 percent higher.

(Additional reporting by Karen Brettell, Gertrude Chavez-Dreyfuss, Ryan Vlastelica and Frank Tang; Editing by Nick Zieminski and Dan Grebler)

Germany Works to Curb European Youth Unemployment

Wolfgang Schäuble, the German finance minister, and Vítor Gaspar, his counterpart in Portugal, announced a plan on Wednesday to use the German state development bank to help set up a financial institution to assist Portuguese under age 25 in getting jobs or job training.

This week, Ursula von der Leyen, the German labor minister, signed an agreement with her Spanish counterpart, Fátima Báñez García, that foresees bringing thousands of young Spaniards to Germany for apprenticeships. At the same time, Germany will seek to help Spain build a dual-track vocational system in which young people earn qualifications through a combination of work and study.

The initiatives are part of a multipronged effort by Berlin to quickly get more young people into the work force, a move that experts say is crucial if a unified Europe is to survive into the next generation. “What is decisive is that we must be faster and more definitive in fighting youth unemployment,” Mr. Schäuble said.

More than 5.6 million people under 25 are without work across the union, according to figures released by Eurostat, the statistical office of the European Union. Among the countries with the largest number of young people out of work are the weaker members of the euro zone that are undergoing deep cuts to social services and other structural changes, part of efforts to recover from the debt crisis.

Germany grappled with its own youth unemployment problem early last decade. While its numbers then were nowhere near the 60 percent of young people now out of work in Greece, or the nearly 56 percent in Spain, German leaders said their experience could be of value to their European partners.

Next week, German and French officials plan to draw up a bilateral agreement on employment when they meet alongside European business leaders at a conference in Paris. On July 3, Chancellor Angela Merkel of Germany will gather labor ministers and the heads of 27 European Union labor agencies in Berlin for a meeting to further discuss the problem.

Details of the German-French proposal remain vague, but Mr. Schäuble insisted that financing would not be an issue.

He cited the 6 billion euros, or $7.8 billion, that the European Union has earmarked in its new budget for addressing the problem, as well as additional money that was given to the European Investment Bank in Luxembourg intended for loans to small and midsize businesses, which would help create more jobs.

“We are working to use the existing funds more efficiently,” Mr. Schäuble said in Berlin.

Unemployment in the early stages of a person’s career damages the ability to integrate into society, or, in the case of the union, to later support the idea of more integration on the Continent, said Joachim Möller, director of the Institute for Employment Research in Nuremberg. “The long-term effects reach far beyond the working world,” he added. “It could be catastrophic for their idea of Europe.”

European Union Leaders Meet on Tax Avoidance

It was the first time that Austria, long considered a tax haven for the wealthy, agreed to a deadline for disclosing such information after rebuffing calls for greater transparency for a decade. The country said it expected to reach an agreement in principle on the matter by the end of the year.

That news, at a summit meeting of European leaders here, upstaged a separate but related topic that has dominated headlines this week: tax-reduction strategies by big multinational companies like Apple, which Congressional investigators in Washington say slashed its tax bill by setting up companies in Ireland.

Pressure on Austria has grown more intense as European countries try to curb citizens’ ability to stash money in other jurisdictions, shortchanging their home governments of tax revenue during a time of lean budgets and gaping deficits.

Ferreting out hidden bank accounts has become a cause célèbre in many countries, especially Greece, which has jailed hundreds of people suspected of tax delinquency, including former government officials. In France, Jérôme Cahuzac, a French minister responsible for fighting tax evasion, resigned upon admitting, after weeks of denials, that he had held a secret bank account in Switzerland.

The 27-member union estimates that tax avoidance costs governments there a total of $1.3 trillion a year.

The crackdown on bank secrecy in Europe is also a result of American demands for fuller cross-border sharing of information under the Foreign Account Tax Compliance Act.

“We will act jointly, and I believe we will manage the exchange of data by the end of the year,” the Austrian chancellor, Werner Faymann, said at the meeting here.

Mr. Faymann said it was a “bad day for tax cheats.” But he stressed that Austria’s concessions were contingent on the “negotiations with third countries” like Switzerland. Austrian officials say that without overhauls in those other jurisdictions, financial services industries in the European Union would be at a competitive disadvantage.

The European leaders, who met for four hours on Wednesday, also directed the European Commission to negotiate tougher agreements with five countries: Switzerland, Andorra, San Marino, Monaco and Liechtenstein.

The chances of the other countries agreeing quickly are not great. And bloc officials warned that those countries could turn the tables by asking the union to make changes first, risking a standoff.

But those countries are also being pressed by the United States for details of all accounts held by American taxpayers. Under that pressure, they may decide there is not much point in digging in their heels with the European Union.

Those negotiations might also clear the way for action by Luxembourg, a bloc member that agreed last month to share banking data by January 2015. But it is still awaiting the outcome of talks with the Swiss before deciding whether to expand the information exchange agreement to include investments like trusts and foundations, as Austria has apparently done.

Once discussions with Switzerland are completed, Jean-Claude Juncker, the prime minister of Luxembourg, said his country “would be in a position to decide the extent of the expansion” of the information exchange.

The summit meeting was billed as an opportunity to push ahead with a crackdown on tax avoidance, but it risked being overshadowed by mounting indignation over reports that American companies, including Apple, had sheltered profits in European countries like Ireland.

Findings by Senate investigators in Washington indicated this week that Apple sharply reduced its tax bill in the United States and the rest of the world by recording most of its worldwide income in Ireland and paying low corporate tax rates there.

The findings and subsequent outcry put the Irish prime minister, Enda Kenny, on the defensive even before he arrived here on Wednesday.

“I’d like to repeat that Ireland’s corporate tax rate is statute-based, is very clear and very transparent — and we do not do special deals with any individual companies in regard to that tax rate,” Mr. Kenny said Wednesday afternoon. “Our country has had its stable corporate tax rate for many years, but that’s not the only reason that companies come to Ireland.”

Similar controversies have risen in Britain about the low taxes paid by the British operations of American companies like Google and Starbucks.

The German and French leaders pledged on Wednesday to step up efforts to recover more funds from global companies.

“We will work toward ensuring companies have to pay more where they are based,” Angela Merkel, the German chancellor, said at a news conference after the meeting.

François Hollande, the French president, told a news conference that Europe should unite to combat profit-shifting by large corporations.

“We cannot accept that a certain number of companies can put themselves in situations where they escape paying taxes in ways that are legal today,” Mr. Hollande said. “We must coordinate at a European level, harmonize our rules and come up with strategies to stop this.”

Speaking on Wednesday at the Brussels summit, Prime Minister David Cameron of Britain insisted he was taking a tough line on taxes with major multinationals like Google, after that company was accused on Wednesday by Ed Miliband, the leader of the opposition Labour Party, of going to “extraordinary lengths” to avoid paying tax in Britain.

Mr. Cameron said he had raised the issue with Google’s executive chairman, Eric E. Schmidt. But Mr. Cameron also cautioned against making targets of particular firms. “I don’t think we’re going to solve this if we simply take one company or another company that is registered in Europe, this one in Ireland,” Mr. Cameron said.

Poll Shows European Union Loses Favor on Continent

The results of an annual survey by the Pew Research Center, a nonpartisan organization based in Washington, show a deepening disillusionment with the union in major member countries.

The results of the survey suggest that more citizens than ever could end up opposing the transfer of more power to European Union institutions that may be vital for transforming the euro into a viable currency over the long term.

“The effort over the past half-century to create a more united Europe is now the principal casualty of the euro crisis,” according to a report that Pew published with the survey results. The title of the report summed it up: “The New Sick Man of Europe: the European Union.”

The poll pointedly noted that, “No European country is becoming more dispirited and disillusioned faster than France.” Last year, 60 percent of the French surveyed said they had a favorable impression of the European Union. This year only 41 percent did, a decline of 19 percentage points that was the biggest annual drop among the countries surveyed.

The results corresponded to some degree to the health of a nation’s economy. Only Greeks and Italians professed less belief in the benefits of economic union than the French, according to Pew. In Germany, 60 percent held a favorable impression of the union.

That could have everything to do with the listless economy in France, which is on the verge of joining much of Southern Europe in recession and has an unemployment rate of 11 percent. The German economy has fared better and has a relatively low unemployment rate of 5.4 percent.

“French and the Germans differ so greatly over the challenges facing their economies that they look as if they live on different continents, not within a single European market,” the authors of the Pew report wrote. As a result, the “French look less like Germans and a lot more like the Spanish, the Italians and the Greeks.”

The gloomy view is understandable given the economic crisis in Europe.

“The limits of the European Union institutional architecture are perceived more directly by the citizens now,” said Enzo Moavero Milanesi, Italy’s minister for European affairs, in an interview. “They have always been known, but citizens expected a more rapid and efficient response to the crisis and ended up complaining about the lengthy procedures, the many meetings, the difficult discussions.

“But it’s a paradox,” said Mr. Milanesi. “The E.U. has made great steps toward further integration and a strengthened monetary union. We even started discussing forms of possible political union, but people are still disappointed.”

One of the smallest declines in sentiment — two percentage points, to 43 percent — was in Britain. But the economic union has never been popular there.

“We should try and renegotiate our relationship with the European Union,” said William Drake, co-founder of the investment advisory firm Lord North Street in London, expressing an opinion shared by many in his country. He added that many regulations were “not being properly discussed and debated by our own democratically elected Parliament. It sort of feels like we don’t rule our own country anymore.”

The polls were conducted during March in Germany, Britain, France, Italy, Spain, Greece, Poland and the Czech Republic, by telephone or in person, with between 700 and 1,100 adults in each country. Each poll has a margin of sampling error of either three or four percentage points.

In France, where voters eight years ago rejected a constitutional treaty meant to streamline decision-making in the European Union and lay out a blueprint for its future, 77 percent of Pew survey respondents said this year that European economic integration had made things worse for their country. That was an increase of 14 percentage points from the previous poll.

Reporting was contributed by Nicola Clark and David Jolly from Paris, Jack Ewing from Frankfurt, Julia Werdigier from London, Gaia Piangiani from Rome, Elisabetta Povoledo from Milan and Raphael Minder from Madrid.

DealBook: ING Plans I.P.O. of European Insurance Unit

7:17 a.m. | Updated

The Dutch financial services firm ING Group said on Wednesday that it was planning an initial public offering of its European insurance business in 2014.

The offering is the latest effort by ING to repay a 10 billion euro ($13.1 billion) bailout from local taxpayers at the height of the financial crisis.

Last week, ING also raised about $1.3 billion by selling a stake in its American division, and it has also sold several of its global businesses in recent months to repay the Dutch government.
The disposals helped to increase its first-quarter net income, which more than doubled, to $2.4 billion, compared with the period a year earlier.

“ING has demonstrated steady progress so far this year on the group’s restructuring, culminating with the successful I.P.O. of our U.S. insurance business,” ING’s departing chief executive, Jan Hommen, said in a statement. “We are now accelerating preparations for the base case of an I.P.O. of our European insurance company.”

DealBook: European Banks Show Signs of Health

4:55 p.m. | Updated

Despite persistent unemployment, malaise and continuing debt problems, one sector in Europe seems to be benefiting: European banks.

After years of painful job cuts and moves to make portfolios less risky, several large European institutions reported strong first-quarter results in recent days, helped by cost-cutting and better performance of major units.

On Tuesday, the Swiss bank UBS and the Lloyds Banking Group of Britain surprised investors by reporting better than expected earnings for the first quarter, sending shares of both banks up.

The British banks Royal Bank of Scotland and HSBC, along with the French bank BNP Paribas, are among those still scheduled to report first-quarter figures in the coming days. But so far, the first-quarter results paint a somewhat encouraging picture of banks that have managed to limit losses from bad loans linked to the credit crisis, while reducing costs and returning to their core banking operations: credit and mortgages for some and wealth management for others.

UBS, for instance, reported on Tuesday a first-quarter profit of 988 million Swiss francs ($1 billion). Those results were down slightly from 1 billion francs in the period a year earlier, but far exceeded the 412 million francs predicted by analysts surveyed by Bloomberg News. Shares of UBS soared 5.67 percent in trading in Zurich on Tuesday.

Sergio P. Ermotti, the chief executive, cautioned that it was “too early to declare victory,” but said the earnings showed the company’s “business model works in practice.”

Some investors note that the continuing difficulties in the euro zone and weak demand for loans mean that many European banks remain in trouble despite relatively good earnings in the first quarter.

“They are doing their utmost to have a decent banking model and the numbers across the board were very good, but going forward we now have the issue of where the growth is going to come from,” said Florian Esterer, a fund manager at the MainFirst Group in Zurich.

Still, European banks are moving actively to address their problems, including by slashing costs in the face of changing regulations and a sluggish European economy. Deutsche Bank reported on Monday after the markets closed that its first-quarter profit rose as cost-cutting offset a decline in revenue from investment banking. Deutsche Bank’s stock also rose 4.7 percent in Frankfurt on Tuesday on the news that it would issue new shares to bolster its capital reserves.

“There are still some headwinds, but banks are pretty much there when it comes to reaching the right level of capital and that is helpful,” said Cormac Leech, an analyst at Liberum Capital.

UBS has been eliminating 10,000 jobs, reducing bonus payments, scaling back its investment banking trading business and focusing more on its successful wealth management operation. Those steps helped the bank’s first-quarter results.

UBS, its Swiss rival Credit Suisse, and Barclays of Britain all benefited from higher revenue at its investment banking operation. At Credit Suisse, pretax profit in its investment banking division rose 43 percent, the bank said last week. Barclays, which also reported earnings last Wednesday, said pretax profit for its investment bank rose 11 percent in the quarter.

Reducing costs and shedding assets also helped Lloyds report a first-quarter net profit of £1.5 billion ($2.3 billion). Those results were a sharp turnaround from the £5 million loss Lloyds posted in the first quarter of 2012.

Analysts say European banks are also starting to recover from the fallout from numerous financial scandals that have hurt their reputations.

UBS, for example, has sought to rebuild trust among clients after it uncovered a $2.3 billion trading loss in 2011 connected with the activities of a former trader, Kweku M. Adoboli, who has since been sentenced to seven years in jail. In December, UBS said it would pay $1.5 billion in fines to settle a case related to the manipulation of the London interbank offered rate, or Libor.

Many of the other large European banks have also been ensnared in the rate-rigging scandal. Deutsche Bank has set aside 2.4 billion euros ($3.2 billion) to cover the potential cost of proceedings that include a tax evasion inquiry in Germany and an international investigation into accusations that its employees and those at other investment banks colluded to fix benchmark interest rates.

While financial institutions will continue to address such issues, there is a cautious optimism now about bank performance.

“There is a new appetite for banks among investors. There’s a confidence that wasn’t there two years ago,” Mr. Leech said.

Jack Ewing contributed reporting.

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European New-Car Sales Down 10.2 Percent in February

MILAN — Europe’s new car market shrank a further 10.2 percent in February, according to figures from the Association of European Car Manufacturers on Tuesday, the lowest since its records began in 1990.

Ford, General Motors and Fiat were the worst performers, as European car registrations fell to 829,359 vehicles after hitting a 17-year low in January.

Car makers in Europe are still reeling from a terrible 2012, when annual car sales volumes in the 27-nation European Union fell 8.2 percent to 12.05 million vehicles. In the 17-nation euro zone, sales dropped 11.3 percent to just under 9 million, according to Reuters calculations.

This year is shaping up to be another tough slog for mass-market car makers, as consumers in recessionary European economies postpone new car purchases.

For 2013, the market forecaster LMC Automotive recently estimated a 3.1 percent drop in West European sales, to 11.4 million vehicles, compared with levels of around 12.8 million in 2011 and 13 million in 2010.

At the European market leader Volkswagen, sales of the core VW brand fell nearly 10 percent, and sales of its luxury brand, Audi, fell 3.8 percent.

The South Korean brands Hyundai and Kia, usually a bright spot, gained 1.4 percent and dropped 1.1 percent, respectively. The duo have made a name for themselves with attractively designed, affordable cars that enjoy long warranties.

Another bright spot was Britain, where sales rose 7.9 percent.

DealBook: Cargo Ship Losses Weigh on European Banks

John Voos/ReutersParking an underused ship somewhere, like the River Fal in Britain, costs money.

FRANKFURT — Can a ship float and be underwater at the same time? If it has been financed by a European bank, the answer may be yes.

A glut of ships, and slack demand for shipping in the weak global economy, have reduced the value of cargo ships. According to some estimates, as many as half the cargo carriers on the high seas today may no longer be worth as much as the debt they carry — putting them underwater, in financial jargon.

Large vessels that might have sold for about $150 million new in 2008 fetch about $40 million today, according to Nicholas Tsevdos, a shipping specialist at CR Investment Management, which helps banks deal with distressed assets. And with cargo fees near record lows, many vessels are not earning enough to make debt payments, either.

As European leaders agonize about how to rescue Cyprus banks, the formerly obscure world of ship finance is a reminder of how much cleanup still lies ahead for the region’s banks. The growing fear is that some lenders, almost all of them in Europe, have yet to confront the scale of potential losses from an estimated $350 billion in loans made to the shipping industry.

“Many banks are still shackled by the leftover effects of the crisis,” Christine Lagarde, the managing director of the International Monetary Fund, told an audience in Frankfurt this week, without identifying any specific assets. “This is the weak link in the chain of recovery.” She urged banks to take a harder look at their problem loans.

Whether the risk from shipping loans is serious enough to put another torpedo into the euro zone financial system is hard to say because of a glaring lack of detailed information about banks’ portfolios of shipping loans.

Andreas R. Dombret, a member of the executive board of the German Bundesbank who is responsible for monitoring financial stability, said he thought the shipping crisis, while serious, did not pose a broad threat to the euro zone. “It’s not a concern for the stability of the financial system,” he said in an interview. “It’s not systemic.”

But he and other bank overseers are stepping up pressure on financial institutions to address their problems. Shipping is “a substantial regional and sectoral risk in the banking industry,” Mr. Dombret warned at an industry gathering in Hamburg last month. It was one of the few times a bank overseer of his stature had expressed concern about the shipping problem.

Under pressure from regulators, local governments that own most of HSH Nordbank in Hamburg said on Tuesday that they would raise their guarantees for the bank to 10 billion euros ($13 billion), from 7 billion euros ($9 billion). Though only a midsize bank, HSH is the biggest lender to the shipping industry, with more than $39 billion in outstanding loans. The announcement, by the City of Hamburg and State of Schleswig-Holstein, amounted to an admission that losses from shipping were greater than earlier estimates.

The shipping downturn, which began in 2008, has already driven several large fleet operators into bankruptcy. The Overseas Shipholding Group, the largest American tanker operator, filed for bankruptcy in November. The fear is that some of the banks most active in ship finance, which are concentrated in Germany, Scandinavia and Britain, are in denial about potential losses.

“It’s probably the most serious commercial problem that the banks have,” said Paul Slater, chairman of the First International Corporation, a consulting firm in Naples, Fla., that specializes in shipping. Banks with large portfolios of shipping loans “are just not taking the hits,” he said. “They are saying, ‘Give it time and it will work out,’ and it’s just not going to do that.”

For weak banks, the temptation to play down potential losses may be great. A frank appraisal of their losses would force some to raise billions in new capital or even to declare insolvency. That is true not only of shipping loans but also of other categories like commercial real estate, and it remains a fundamental problem for the euro zone economy.

The uncertainty about banks’ true financial health fosters mistrust among institutions, makes them reluctant to lend to each other and is partly responsible for a shortage of credit for businesses and consumers.

As sour assets go, ships are particularly troublesome. Unlike a plot of land, they require costly maintenance. They lose value over time from wear and tear or because more modern, fuel-efficient vessels make them obsolete. It costs money even to take an underused ship out of service and park it somewhere. The waters off Falmouth in Britain and Elefsina in Greece are popular anchoring spots for idle ships.

Investment funds that specialize in buying distressed debt have been wary about putting money into ships. That makes it hard for banks to unload unwanted shipping assets.

“Every hedge fund in the world is trolling Europe, but they are bidding on a small percentage of relatively good assets,” said Jacob Lyons, managing director of CR Investment Management in London.

Mr. Dombret of the Bundesbank pointed out that the banks that had made the most loans to the shipping industry were in nations like Germany or the Scandinavian countries whose governments had the least debt and were best able to cope with a banking crisis.

Mr. Dombret did not single out individual banks, but German banks like HSH Nordbank and Commerzbank in Frankfurt were among the top shipping lenders because German tax breaks favored ship finance. German banks’ exposure to shipping has been estimated at about $129 billion, more than double the value of their holdings of government debt from Greece, Ireland, Italy, Portugal and Spain. Aside from German banks, the DNB Group in Norway and Nordea in Sweden are big players in ship finance, as are Lloyds Banking Group and the Royal Bank of Scotland in Britain.

It does not necessarily follow that these banks will face losses on their shipping portfolios. Some of the savviest lenders probably still make money, or at least have made an honest appraisal of the value of their portfolios and set aside enough money to cover possible losses.

“We are very happy with our shipping business,” said Rodney Alfven, head of investor relations at Nordea. The bank, which is listed in Stockholm, increased the amount of money it set aside for potential bad loans in shipping to $81 million in the final three months of 2013 from $70 million the previous quarter. Over all, Nordea, the largest Swedish bank, has consistently made a profit from its shipping business, Mr. Alfven said. Shipping loans account for only 2 percent of Nordea’s lending, the bank said.

The sorry state of global shipping stems from a shipbuilding boom that peaked in 2008, just before the global financial crisis, and created a glut in cargo capacity. Rates for nonliquid cargo are half or less of the level needed for shipowners to break even, according an estimate by the consultant KPMG. That means that ships are doubly damaged. They do not earn enough to cover interest on their debt, nor can they be sold for the value of the loan.

Nordea has told investors it expects shipping to begin to recover in 2014, as the world economy rebounds. But others are more skeptical.

“By any kind of measure, this is a deeper and more difficult downturn than we’ve had in the last decade or two,” said Mr. Tsevdos of CR Investment.

Except for some specialized categories of ship, like liquid-natural-gas carriers, he said, “I don’t think there is a lot of indication for a lot of sectors that rates are going to turn around soon.”