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Global stocks rebound as Europe unveils crisis packages (AFP)

by Simon Sturdee 9 minutes ago

BERLIN (AFP) - European governments on Monday launched a multi-pronged attack on the financial crisis, approving more than a trillion dollars in loans and providing a shot in the arm to ailing world financial markets.

Governments across the continent, rattled by the relentless downward spiral of shares, unveiled rescue packages after agreeing at a weekend summit to guarantee interbank lending and make state funds available to buy bank stocks.

The package announced by Germany alone included 400 billion euros (545 dollars) in loan guarantees and 80 billion euros in fresh capital, while France said it would guarantee up to 320 billion euros of lending between banks.

And in Washington, US President George W. Bush also vowed to pursue "responsible, decisive action to restore credit and stability and return to vigorous growth" as he met visiting Italian Prime Minister Silvio Berlusconi.

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 which also included details from Britain on its part-nationalisation of several leading banks.

Meanwhile Neel Kashkari, the US Treasury's pointman on the massive bailout, said Washington was ready to buy equity in a "broad array" of financial institutions in a further bid to restore confidence.

Announcing details of the German package, Chancellor Angela Merkel said the measures being taken would only work if they were accompanied by improved international regulation that would end "market excesses."

"Today's measures are the first element of a new financial market charter ... but it can only be worthy of the name if it is followed by a second element, namely a change in international rules," she said after her cabinet approved the package.

French President Nicolas Sarkozy, who hosted a weekend summit for leaders of the 15-nation single currency eurozone, announced a 360-billion-euro rescue plan to pump capital into banks and underwrite loans between them.

France would guarantee up to 320 billion euros of interbank loans taken out until December 2009, and set aside up to 40 billion euros to recapitalise French banks, Sarkozy said.

"Money is not circulating anymore. We have to create the conditions to get it moving again," he said. "The greatest danger is not to take risks, it is to do nothing."

In Spain, Prime Minister Jose Luis Rodriguez Zapatero announced that a maximum 100 billion euros would be set aside to cover similar loans while Italy's Finance Minister Giulio Tremonti said his government would spend "as much as necessary" to support the country's banks.

Leaders from the 15 eurozone nations agreed the outline of the rescue plan at the 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 interbank lending and free up credit markets that have been left reeling by the US subprime mortgage crisis.

European stock markets, which last week plunged by more than a fifth in their worst period since the 1929 crash, reacted positively.

The German stock exchange gained more than 10 percent in afternoon trading to breach the psychological 5,000 point mark, while Paris soared 7.38 percent. London won 5.27 percent, Madrid rallied 7.88 percent and Zurich rocketed 8.55.

Wall Street shares jumped at the market opening Monday, with the Dow up more than four percent.

US economist Paul Krugman, who was awarded the Nobel Economics Prize on Monday, said he was "extremely terrified" by the crisis but his fears had been at least slightly allayed.

"I'm happier about it now than I was five days ago," said New York Times columnist Krugman, a fierce critic of Bush's economic policy.

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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