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Last Updated: Oct 28th, 2008 - 17:57:18 |
EUOBSERVER / BRUSSELS - An unprecedented extraordinary meeting of eurozone leaders in Paris has given the green light to a set of synchronised moves by member states to boost confidence in the financial sector and save failing banks with public money.
"We cannot have a healthy economy and sustainable growth unless we have a solid financial sector," said French President Nicolas Sarkozy on late Sunday (12 October), after the hastily arranged summit of the 15-strong euro area.
The crisis talks aiming to adapt the bloc's financial markets to better cope with the worst financial crisis since the 1930s led to an agreement on a plan similar to that of Britain's rescue scenario.
"I believe that there is common ground now about what needs to be done," UK Prime Minister Gordon Brown told journalists in Paris after he explained the details of the British approach hours ahead of the eurozone session. The UK remains outside the eurozone.
Under the agreed package, 15 countries plus Slovakia - set to join the euro in January - committed to provide capital for banks striving for funds because of frozen money markets and to help or directly subscribe to debt-raising by banks for up to five years.
Governments are ready to guarantee interbank loans at market rates until the end of next year, while also providing previously announced deposit guarantees for savers.
"What we want is to give back banks the means to lend, to support the economy to enable households to borrow for mortgages or consumption and give companies the means necessary to invest for growth," Sarkozy said.
"This is not a gift to banks but will help them function," he added, stressing that the extraordinary measures needed to attack the immediate problem should be later followed by structural changes in the financial system in a bid to create "a real capitalism, and not one of speculators."
"Believe me, in Europe, we will not allow the system continue working in such a way. Believe me, those responsible will need to assume their responsibility. There will be changes ... And those who put the world into this situation will have to pay back."
On the verge of financial meltdown
Ahead of the Paris euro meeting, finance ministers from the G7 club of the seven most industrialised nations - the US, Canada, Japan, Germany, France, Britain and Italy - gathered in Washington on Friday (10 October) and agreed a five-point plan to free up the flow of capital, revive the mortgage market and boost efforts by banks to raise money.
Dominique Strauss-Kahn, the head of the International Monetary Fund, endorsed the plan while suggesting that previous moves by rich nations had been insufficient.
"Intensifying solvency concerns about a number of the largest US-based and European financial institutions have pushed the global financial system to the brink of systemic meltdown," he said, according to BBC.
US President George Bush argued that the key point is to prevent contradicting actions among the superpowers. "In our interconnected world, no nation will gain by driving down the fortunes of another. We are in this together. We will come through it together," he said.
Striving to prevent another 'Black Monday'
The busy agenda in several world capitals over the weekend attempts to stauch the bleeding in global stock markets , which crashed last week, with the American Standard & Poor 500 index tumbling more than 18 percent, while European stocks plunged 22 percent and Tokyo's Nikkei tumbled 24 percent.
France, Germany, Italy, Austria and several other countries are each due to hold government meetings on Monday to announce details of their national bail-out schemes, and will reveal the precise sums of public money they are ready to inject to the banking sector.
German media have reported that Berlin is to propose a package worth some €400 billion, of which around €100 billion can be used in direct interventions in banks.
Analysts believe this sort of co-ordinated action could indeed do the trick for the bloc's financial sector.
"This announcement of concrete, decisive and well-targeted measures to be deployed simultaneously by individual governments should reassure markets," Marco Annunziata, chief economist with Unicredit Markets and Investment Banking in London, told Reuters.
Initial reports on Monday showed a positive reaction by Asian markets, with shares in Australia, Hong Kong, China, South Korea, Singapore and India all rising , although while Taiwan's stock market has lost ground, the BBC has reported.
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