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Europe moves to quell financial firestorm (AFP)
2008.10.13by Simon Sturdee 6 minutes ago
BERLIN (AFP) - European governments launched a multi-pronged attack to combat the financial crisis Monday, approving hundreds of billions of dollars in loans and buying into banks in a move to end panic on the markets.
Governments across the continent, rattled by the relentless downward spiral of shares, unveiled rescue packages after agreeing at a weekend summit to guarantee inter-bank lending and make state funds available to buy bank stocks.
The package announced by Germany included 80 billion euros (108 billion dollars) in fresh capital and 400 billion euros in loan guarantees while France was set to provide a guarantee of up to 300 billion euros on inter-bank loans.
And in London, the government said it was "taking decisive action" with its huge investment in Royal Bank of Scotland, HBOS and Lloyds TSB as part of a scheme announced last week which set aside 50 billion pounds to buy shares in troubled institutions.
A fourth bank, Barclays, said it would not take part in the government scheme but would still raise 6.5 billion pounds from private investors.
"In extraordinary times, with financial markets ceasing to work, the government cannot just leave people on their own to be buffeted about," said Britain's Prime Minister Gordon Brown.
Stock markets, which had largely failed to rally after the US government announced a 700 billion dollar bank bailout plan last month, rose strongly amid the string of announcements by European governments.
Meanwhile Neel Kashkari, the US Treasury's pointman on the 700 billion dollar bailout, said Washington was ready to buy equity in a "broad array" of financial institutions.
"We are designing a standardised program to purchase equity in a broad array of financial institutions," Kashkari said.
The German package, which was announced by the finance ministry, was to be discussed by Chancellor Angela Merkel's cabinet before being voted on by MPs with a view to becoming law this week.
In return for the capital injection the German state is expected to take stakes in banks in a partial nationalisation similar to plans announced in Britain .
The package "is the answer that we must give in order to... achieve a more comprehensive solution for the entire financial system. Markets must have trust again," Finance Minister Peer Steinbrueck told the Bild daily.
French President Nicolas Sarkozy, who hosted Sunday's summit, was to flesh out his government's battle plan in a national televised address.
According to a report in Le Monde newspaper, the French plan would see the state provide a guarantee of up to 300 billion euros" (405 billion dollars) on inter-bank loans, that would run until the end of 2009.
In Madrid, Prime Minister Jose Luis Rodriguez Zapatero announced that the Spanish government would set aside a maximum of 100 billion euros (134 billion dollars) to cover similar loans.
Leaders from the 15 nations in the euro single-currency bloc agreed the outline of the measures at an emergency summit in Paris on Sunday.
In addition to setting up funds to buy into banks, the model foresees money being set aside to guarantee inter-bank lending and free up credit markets that have been left reeling by the US sub-prime mortgage crisis.
European stock markets, which last week plunged by more than a fifth in their worst period since the 1929 crash, reacted positively.
In midday trade, Frankfurt's stock market was up a huge 6.15 percent and Paris soared 6.36 percent. London won 4.84 percent, Madrid rallied 6.85 percent and Zurich rocketed 7.63.
"We have had our first significant bounce in the markets for some time now," City Index market strategist Joshua Raymond said in London.
Asian stocks also posted heavy gains after a week of big losses, with Hong Kong up more than 10 percent. Tokyo, Asia's largest stock market, was shut for a public holiday after slumping 24 percent last week.
Markets across the globe have been in a state of panic since the middle of last month when the venerable Wall Street investment bank Lehman Brothers filed for bankruptcy protection after the US government refused to bail it out.
Banks and other financial institutions across the world have been hit by bad debts stemming from the granting of so-called subprime loans to house-buyers in the United States who subsequently defaulted.
Regions : Europe
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