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European leaders hammer out crisis rescue packages (AFP)

by James Franey 49 minutes ago

PARIS (AFP) - Fifteen European Union leaders on Sunday hammered out action to confront the financial crisis before announcing hundreds of billions of dollars of new initiatives to head off a feared "meltdown".

Two weeks after the collapse of Lehman Brothers unleashed a worldwide share crash, US and European leaders have signalled a growing commitment to take joint action to end the turmoil.

After the Group of Seven wealthiest nations proposed an action plan at weekend meetings in Washington, President Nicolas Sarkozy, host of the Paris summit of the 15 nations that use the euro currency, said the meeting would provide "an ambitious, coordinated" plan to contain the crisis.

The 15 were to stress their determination to prevent any major financial institution from collapse and would guarantee loans between banks, according to a draft summit statement seen by AFP.

Europe's economic powerhouses all prepared new individual initiatives to underpin the banking system.

No details were immediately released, but France and Germany were to unveil bank rescue packages worth hundreds of billions of dollars on Monday, officials said.

Britain, which has already committed more than 700 billion dollars to a bank rescue, was to take controlling stakes Monday in two major banks worst affected by the crisis, media said.

The New York Times said the US administration was also heading toward taking direct stakes in threatened banks in coming days.

Australia, New Zealand, the United Arab Emirates and Portugal all moved to guarantee bank deposits. Norway said meanwhile it would issue up to 41 billion euros (54.5 billion dollars) in bonds to pay for measures to support banks.

European Commission president Jose Manuel Barroso said before entering the Paris summit that: "We now need an unprecedented level of coordination to deal with this unprecedented crisis."

British Prime Minister Gordon Brown, who was specially invited to the summit, warned: "For Europe, the stakes could not be higher and this is a moment of truth. No country -- not even the biggest -- can make it just on their own at a time like this. We are all in it together and have to work to solve it together."

International Monetary Fund chief Dominique Strauss-Kahn said at the Washington finance meetings that "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."

But Strauss-Kahn claimed that an action plan adopted by the Group of Seven most wealthy nations was a breakthrough with the first global pledge to cooperate to stabilise the turmoil at the meetings.

The G7 plan was vague on details, but commits countries to support the most important institutions, take measures to get credit flowing, assist banks in raising capital and reassure savers.

US President George W. Bush said the world's richest economies were united on a "serious global response" to the financial meltdown caused by massive loans to US lenders with bad credit histories.

Europe appears to have decided to follow Britain's lead in providing funds to prop up individual banks and free up vital short term loans between institutions to keep markets moving.

Brown's government has set aside 250 billion pounds (315 billion euros) to guarantee loans, in addition to 200 billion pounds in short term loans and 50 billion to buy stakes in major banks.

Britain is now preparing to take controlling stakes in Royal Bank of Scotland and HBOS on Monday, reports said. The move would make the government the biggest shareholder in the banks, the Sunday Times and Sunday Telegraph newspapers reported.

An industry source told AFP the banks could make an announcement on Monday.

Germany is expected to guarantee interbank loans with between 300 and 400 billion euros (405 to 540 billion dollars) and to provide banks with fresh capital in exchange for shares, as in the British plan.

German Chancellor Angela Merkel said only the state could now restore "the necessary trust" to the public and financial markets.

The French government will on Monday propose a state guarantee for banks endangered by the financial crisis, a ruling party deputy said.

Coordination against the crisis is considered vital to prevent the actions of one country harming another and exacerbating the bank solvency and credit shortage problems.

In the Great Depression of the 1930s, so-called "beggar-thy-neighbour" measures taken unilaterally by countries are considered to have deepened the economic pain.

Regions : Europe

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