WORLD> Europe
|
WORLD> Europe
|
|
Europe mounts massive rescue bid
(China Daily)
Updated: 2008-10-14 06:54 BERLIN/PARIS: Germany, Britain and France announced massive financial rescues Monday as governments across Europe stepped in to shield banks and restore confidence in the face of the worst financial crisis in nearly 80 years. The German cabinet approved a rescue package that will provide 400 billion euros ($543.4 billion) in bank guarantees and a further 100 billion euros in state funds to recapitalize banks, according to government sources.
Britain, meanwhile, waded in with 37 billion pounds ($63.85 billion) of taxpayers' cash to bail out three major banks, in a move that could make the government their main shareholder. French President Nicolas Sarkozy said his government will provide up to 360 billion euros ($491 billion) to help banks stay afloat through the financial crisis. Sarkozy said the money includes 320 billion euros ($436 billion) to guarantee bank refinancing and another 40 billion euros ($54 billion) for a government-backed financing vehicle to provide banks with the capital they need. Other euro zone countries were set to announce similar plans. The drastic steps were a crucial test of investor faith in the ability of European governments to get a grip on the global financial crisis after they promised coordinated rescue packages at an emergency summit in Paris on Sunday. Initial reaction was positive. Stock markets across Europe rallied on the outcome of the 15-nation euro zone summit, designed to restore trust in the banking system and rekindle frozen interbank lending. "Thanks to the decisions that have just been taken, the peak of the crisis is perhaps behind us," Dominique Strauss-Kahn, managing director of the International Monetary Fund, told French radio. The interbank cost of borrowing three-month sterling and euro funds also eased in response to the bank rescue measures. Spanish Prime Minister Jose Luis Rodriguez Zapatero, whose country has been hit by a house price crash, said the bank bailouts could dent European sovereign debt credit ratings. Under European Union accounting rules, the cost will be added to national debt rather than budget deficits. The European Commission acknowledged that any hope of member states' balancing their budgets by 2010 as promised last year had been buried by the "exceptional circumstances". "With the deterioration in the economic situation, there is going to be a deterioration of public finances. Fiscal revenues are diminishing and in some cases, they are diminishing strongly," commission spokeswoman Amelia Torres told a briefing. "Expenditure remains the same and in some cases it's increasing where unemployment has already gone up," she said. Underpinning the government plans, European central banks said they would lend as much US dollar liquidity as commercial banks needed in a renewed joint bid to tame money market tensions. "The biggest change from today relative to last week is the fact that euro zone officials seem to have come up with a template plan from which national governments can pick and choose and implement where they see necessary," said Derek Halpenny, European head of Fx research at BTM-UFJ. Although governments are bracing for a prolonged period of economic weakness, they hope the measures announced Monday will stem a crisis of confidence in the financial system. "Despite prospects of a worsening economic crisis, we believe that the nationalization of parts of the banking system could be viewed as the defining moment that marked the start of the end of the financial crisis," Philip Finch, global banks analyst at UBS, said in a note to clients. Agencies |
