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Eurozone leaders agree on financial rescue plan

Latest update : 2008-10-13

Capping a weekend of frantic high-level meetings on the financial crisis, a eurozone summit in Paris Sunday ended with a rescue plan to guarantee inter-bank lending and recapitalise banks in trouble

Click here for FRANCE 24's special report, "Global capitalism on the brink?"

 

 

European leaders, rushing to craft a credible response before fearful world markets reopen, pledged on Sunday to pump public money into banks battered by the worst financial crisis since the 1930s.

 

"This needs concrete measures and unity -- that's what we have today," French President Nicolas Sarkozy, who hosted an emergency meeting of leaders from the 15 euro zone countries plus Britain, told a news conference.

 

According to a document circulated during the summit, two key things agreed by leaders were the commitments to provide capital and insure or directly buy into new debt issues.

 

Sarkozy said governments were ready to take stakes in banks and that details would be announced at national level, to start with in Paris, Berlin and Rome, on Monday.

 

"This is not a gift to banks but to help them function."

 

According to the document circulated, a draft statement, the leaders pledged to help or directly subscribe to debt-raising by banks for periods of up to five years to complement efforts by the European Central Bank to unfreeze inter-bank lending markets.

 

European Commission President Jose Manuel Barroso confirmed that point at the news conference held with Sarkozy and others.

 

Sarkozy said the summit showed that Europe was able despite myriad national borders to respond collectively to the crisis, which spread from the United States more than a year ago but has hit fever pitch in recent weeks.

 

Officials had suggested action rather than rhetoric would emerge from a gathering that also involved European Central Bank President Jean-Claude Trichet.

 

"If market confidence is not restored this weekend, it's game over," said Marco Annunziata, chief economist for UniCredit, an Italian bank which is among many whose shares have been hurt in panic-stricken stock markets.

 

The American Standard & Poor's 500 index tumbled more than 18 percent last week, its worst weekly fall on record. European stocks plunged 22 percent and Tokyo's Nikkei crashed 24 percent.

 

Money markets, less visible to the public, are essentially on life support and dependent on regular, massive injections of emergency liquidity from central banks across the globe because banks themselves will not lend to each other as they used to.

 

The Paris meeting was hastily arranged by Sarkozy on the heels of a G7 summit of rich nations in Washington that offered no concrete, collective action but promised to do whatever was needed to unfreeze credit markets.

 

 

 

NO SINGLE RESCUE POT?

 

British Prime Minister Gordon Brown, whose country has not adopted the euro, was invited to Paris because the euro zone was interested in the rescue plan announced in London last week.

 

Brown, present for the first part of the meetings only, told a news conference before leaving the Elysee presidential palace:

 

"I believe that we will see over a few days worldwide action that will make people see that confidence in the banking system can be restored."

 

Britain's rescue plan makes available 50 billion pounds ($86 billion) of taxpayers' money for injection into its banks and, crucially, calls for underwriting interbank lending.

 

What emerged from the Paris summit looked similar to the British plan in many respects, though no figures were mentioned and it was not immediately clear whether governments in the euro zone were planning to underwrite interbank lending.

 

On Saturday, media reports said Germany was readying a rescue package that could be worth up to 400 billion euros, including the injection of equity capital worth "double digit" billions into its banks and guarantees for interbank lending.

In addition to Brown and the leaders of the euro countries, the summit involved Trichet, European Commission President Jose Manuel Barroso and Jean-Claude Juncker, Luxembourg prime minister and chief spokesman for euro zone finance ministers.

 

In London meanwhile, big British banks were in talks with government officials and regulators and were likely to announce plans to recapitalise early on Monday, according to a person familiar with the matter.

 

The talks there were to determine how much capital each bank needs from the 50 billion pounds ($86 billion) offered by the government, said the source, who declined to be identified.

 

Date created : 2008-10-12

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