While Europe’s four largest economies pledged to coordinate national responses to help banks in distress, their failure to agree an EU-wide plan showcased the divisions in Europe on how to deal with the crisis.

France had suggested a multibillion-euro (multibillion-dollar) EU-wide government bailout plan, but backed off after Germany said banks must find their own way out.

That was telling, given crisis talks aimed at keeping Hypo Real Estate afloat. The firm said Saturday that the rescue plan had fallen apart after private lenders withdrew support, a key element to the proposal that had already been approved by the EU earlier this week.

It was not known if the government, which planned to inject nearly euro27 billion (US$37.35 billion)would raise its stake in the bailout package.

In Iceland, — one of the countries most heavily exposed to the credit squeeze — government officials and banking chiefs were discussing a possible rescue plan for the country’s overstretched commercial banks.

Icelandic banks expanded rapidly after deregulation of the domestic financial market in the 1990s and now have combined foreign liabilities in excess of euro100 billion (US$138.34 billion) — dwarfing the tiny country’s gross domestic product of euro14 billion (US$19.37 billion.

The government last week took over Iceland’s third-largest bank, Glitnir, a decision that prompted major credit ratings agencies to downgrade both Iceland’s four major banks and its government credit rating.

Looming large was a growing sense that the Federal Reserve and Europe’s major central banks — which have been flooding euros and dollars to banks that have become increasingly stingy about lending money even to themselves — were ready to institute emergency cuts to their benchmark interest rates this week.

“It will be interesting to see how markets react now that they do not have the distraction of the bailout plan,” said Robert Brusca, chief economist at the New York-based Fact and Opinion Economics.

1|2

SharePrintEmail

Write a Comment

Enter your comments - 1000 characters max

Type in image code

Submit

 Receive China Post promos Respond to this email