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EU leaders cool to French bank-rescue plan

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Latest update : 2008-10-02

Paris and Berlin have clashed over a French plan for a financial-rescue fund ahead of a European summit on the crisis this weekend. Meanwhile, the European Central Bank's governing council meets Thursday to determine interest rates for the euro zone.

Watch our Top Story, "Bailout on the ropes", our Face-Off show, "No bailout, no way out?", and the France 24 Debate, "Crisis strikes Europe".

 

Read Douglas Herbert's commentary and our coverage of the effects of the crisis on French banks.

 

Find out more about the origins of the greatest financial crisis in decades and watch Professor Gerardo Della Paolera explain how we got there.

 

Read how to spend $700 billion 




Confusion and disagreement undermined Thursday preparations by French President Nicolas Sarkozy for a summit of Europe's economic powers to find a way out of the financial crisis.

Sarkozy wants the leaders of Britain, France, Germany and Italy to meet this weekend to coordinate the continent's moves to bail out failing banks and pump capital into credit markets.

But, with only days to go before the talks should start, even the date of the summit has yet to be confirmed and Paris and Berlin have already clashed over a rumoured French plan for a 300-billion-euro bank rescue fund.

France, which holds the presidency of the European Union, has been keen to develop a European response to the credit crisis, which began when US banks found themselves dangerously exposed to bad debt, and spread round the world as credit markets choked up.

Its European neighbours, however, have so far preferred to take unilateral and bilateral measures to protect their own institutions and are looking forward to the G7 meeting of world finance ministers in Washington next week.

A European official told reporters France was proposing a massive joint 300-billion-euro fund to be used to prevent any European bank from collapsing.

This idea was dismissed by the German finance ministry. "Germany does not think much of such a plan," spokesman Torsten Albig told AFP.

France's Finance Minister Christine Lagarde, speaking on British television, denied that there had ever been such an idea, but emphasised what Paris sees as a need for concerted action in Europe ahead of the G7 meeting.

Lagarde told the BBC that this week's bailouts of banks Dexia and Fortis by European governments working together showed a "very decent level of coordination and a very decent level of cross-sharing of information".

But she implicitly criticised Ireland's announcement that it would guarantee all deposits in its own six biggest banks, saying: "A measure decided in one member state has to be shared in advance with other member states.

"Because when something happens in one member state it affects everybody else around, so there needs to be that level of cross-sharing of information."

Britain has also criticised Ireland's move, fearing that Irish and British depositors will move their savings into the protected Irish banks and put British banks operating in the two countries at a disadvantage.

Nevertheless, London has been no more enthusiastic than Berlin about Sarkozy's plan for a Paris finance summit, with a government spokesman refusing to say whether Prime Minister Gordon Brown will attend.

Sarkozy's special adviser Henri Guiano on Thursday told Canal+ television it would no longer be a priority for France to meet its obligations under Europe's Maastricht Treaty to keep its public deficit down under three percent of GDP.

"The priority is saving the world banking system," he said.

Jean-Claude Juncker, Luxembourg's finance minister and chairman of the committee of eurozone finance ministers, has said that the summit would take place on Saturday and praised Sarkozy for his leadership on the issue.

But on Thursday he too came out against the idea of a joint European fund.

A joint rescue plan is "not necessary in Europe" because the banking sector there is "more stable", Juncker said.

The French president had already called for European leaders to meet to agree a position ahead of what he hopes will eventually be a world summit to "establish the basis of a new international financial system".

But Germany has downplayed the importance of any eventual Paris meeting.

On Wednesday, German government spokesman Thomas Steg said: "in the 27-nation EU there are very different conditions when it comes to financial markets as well as different cultures in the financial systems."

"We do not want ... to engage in any speculation that any European solutions or models will be discussed in whatever form," he added.

Meanwhile, in Washington, the US Senate approved a 700-billion-dollar bailout plan for failing banks, increasing pressure on the House of Representatives to reverse a vote to reject an earlier version of the package.

Date created : 2008-10-02

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