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EU ministers gather to address financial tumult

Text by AFP

Latest update : 2008-12-10

Chaos on world markets and alarm that people might besiege banks to withdraw their money forced EU ministers into special sesssion in Luxembourg on Tuesday to find unity and possibly agree on a bank deposit guarantee of 100,000 euros.

Governments scrambled for emergency measures to protect savers, shore up confidence in banks and shield them from a potentially catastrophic cash exodus on Tuesday amid more panic on global stock markets.
   
Chaos on plunging markets and alarm that people might besiege banks to withdraw their money forced EU ministers into special sesssion in Luxembourg to find unity and possibly agree on a bank deposit guarantee of 100,000 euros (135,000 dollars).
   
"We must restore confidence at a European level to the banking system," said Irish Finance Minister Brian Lenihan as he arrived for the talks in Luxembourg, confirming that a 100,000-euro limit was "under examination."
   
Distressed global stocks endured another rollercoaster ride, with some rallying briefly before dipping once more after huge falls on Monday.
   
The deepening crisis, now buffeting ordinary savers, pushed European Union governments into pledging to protect financial institutions with "liquidity support through central banks, action to deal with individual banks or enhanced depositor protection."
   
European shares rallied initially but then London fell into a loss of 0.67 percent after plunging 7.8-percent on Monday, Frankfurt was down 1.48 percent having lost 7.07 percent on Monday and Paris shares were down 0.17 percent after slumping 9.04 percent.
   
In Asia, Tokyo stocks ended with a fall of 3.03 percent and Hong Kong stocks fell 5.0 percent but elsewhere stocks were mixed between rallies and falls. Wall Street had closed with a loss of 3.58 percent on Monday, pulling back from a precipitous drop.
   
Stock markets in Moscow were closed after a 19.10-percent crash on Monday.
   
The dollar fell in Tokyo, after recent sharp rises against the euro as the crisis swept into European banking. The euro was at 1.3575 dollars from 1.3523 in New York on Monday. In Singapore oil rebounded to 3.25 dollars to 91.06 dollars a barrel.
   
Egypt's key CASE-30 stock index fell 14.5 percent in early trading.
   
"There's panic, everything is down, it's incredible," said Ahmed Hefanoui, a Cairo-based analyst with investment bank EFG Hermes.
   
Jean-Claude Juncker, who heads the group of finance ministers from the 15 countries that share the euro said: "We will all take the necessary measures to ensure the stability of the financial system."
   
The meeting in Luxembourg, amounting to a war council to fight the conflagration consuming the global financial system, involved finance ministers from all 27 European Union countries.
   
Currently EU law requires member states to guarantee savers' deposits to at least 20,000 euros in case a bank goes bust, although some states have long offered much higher protection.
   
There is widespread criticism that the lack of a united European front, notably at a crisis meeting here at the weekend, was a factor in the stocks rout on Monday, together with the crisis government-aided rescue of German Hypo real estate bank with 50 billion euros.
   
Jean-Claude Trichet, president of the European Central Bank, said the ECB would keep injecting money into the banking system "as long as necessary" to help institutions hit by the current crisis.
   
Central banks have injected vast sums daily to keep the banking system working with cash, and the bank of Japan again provided an infusion on Tuesday.
   
In Washington, US Treasury officials said they would act quickly to implement a massive bailout plan for the financial sector.
   
The Federal Reserve and Treasury said they were studying the possibility of making unsecured loans in an effort to keep much-needed credit flowing.
   
The Fed said it would start to pay interest on bank deposits and expand bank loans to up to 900 billion dollars by year-end in a bid to increase liquidity.
   
In Iceland, where the financial sector has been tottering on the verge of collapse, the Financial Supervisory Authority said it would take control of the country's second largest bank, Landsbanki. The biggest bank Kaupthing also received a 500-million-euro (678-million-dollar) loan from the central bank.
   
As the EU finance ministers began their meeting, the head of the French central bank Christian Noyer declared: "Our banks are solid, they are not at all at risk."
   
"If by chance something unexpected happened, no French bank would fall," and a French guarantee of savings up to 70,000 euros might be raised.
   
Switzerland became the latest in a string of European countries to reassure people with money in banks, saying that if necessary it would protect deposits.
   
The US government approved a law Friday to buy up 700 billion dollars of bad mortgages and other assets from banks, which would wipe the debts from their books in hopes they will be able to start lending more freely again.
   
"When will the slide end? It's anybody's guess," said David Kastner at Charles Schwab & Co.
   
"But the aggressive actions being taken by the Fed, and increasingly by the central bankers in Europe and Asia, point to an eventual stabilisation in confidence -- where the real crisis lies. In the meantime, we expect sharp bouts of bargain hunting and more panic sell-offs."
   

Date created : 2008-10-06

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