Tue, Oct 14, 2008 - Page 1 News List

EU leaders agree to buy into banks

CASH COW Berlin was expected to guarantee inter-bank loans with 300 billion euros to 400 billion euros as well as provide banks with fresh capital in exchange for shares


European governments hurried yesterday to calculate how many hundreds of billions of euros they would spend on an unprecedented 15-nation bank bailout that already appeared to be soothing markets along with action by top central banks to pump unlimited US dollar credits into the financial system.

Germany, France, Italy and Austria were deciding the details and putting a price tag on the plan announced the night before at an emergency summit in Paris.

France’s Le Monde daily estimated the total burden at a staggering 1.3 trillion euros (US$1.77 trillion).

In Europe’s most unified response yet to the financial crisis, leaders of the 15 countries that use the euro currency agreed on Sunday that individual governments would guarantee bank refinancing until the end of next year, rescue important failing banks through emergency cash injections and take other measures to encourage banks to lend to each other again.

Stocks markets rebounded yesterday after the decision.

The euro zone government promised to tackle the crisis together, buying into banks by taking preference shares and guaranteeing inter-bank lending to help increase liquidity.

French President Nicolas Sarkozy said governments would reveal more details later yesterday.

The European talks came after leaders from the G7 richest economies pledged to support key financial institutions, take measures to get credit flowing, assist banks in raising capital and reassure savers.

The measures were met by investors with guarded optimism, prompting a rally on Asia’s biggest markets, with Sydney and Hong Kong both gaining and recovering some of their massive losses from last week’s marathon sell-off.

Hong Kong’s benchmark Hang Seng Index ended the morning up 3.2 percent at 15,275.67, while in Sydney, the benchmark S&P/ASX 200 closed up 5.6 percent at 4,180.7 and Seoul finished 3.8 percent up. The Tokyo market was closed for a public holiday.

In Washington, the EU measures won swift praise from IMF managing director Dominique Strauss-Kahn, who said the IMF had been calling for months for a coordinated international response to the brewing crisis.

“Nearly all advanced countries are now covered and the ... eurozone provisions may be extended eventually to all of Europe,” he said. “The eurozone plan is also comprehensive ... Altogether we are going in a good direction.”

In London, reports said the British government would be taking controlling stakes yesterday in two banks hit hard by the crisis — Royal Bank of Scotland and HBOS.

Britain has already set aside £250 billion (US$425 billion) to guarantee loans, in addition to £200 billion in short-term loans and £50 billion to buy stakes in major banks.

However, Barclays, one of Britain’s leading banks, said yesterday it planned to raise more than £6.5 billion from investors, turning down the government rescue offer.

British Prime Minister Gordon Brown said the coming week was critical.

“I believe that in the next few days confidence in the banking system will be restored ... The decisions we take over the next few days will affect us for the years ahead,” he said.

Germany was also expected to guarantee inter-bank loans with 300 billion euros to 400 billion euros as well as provide banks with fresh capital in exchange for shares.

German Chancellor Angela Merkel said only the government could restore “the necessary trust” to the public and financial markets.

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