Euro nations to guarantee debt
Banks covered through 2009; funding offered
PARIS - Nations in Europe's single-currency zone agreed yesterday to temporarily guarantee bank refinancing and pledged to prevent banks failing as part of a raft of emergency measures designed to get credit flowing again.
It was Europe's most unified response so far to the global financial crisis and addresses a key part of the problem: banks' reluctance to lend to each other. That has helped fuel the crisis that has pulled down some of Wall Street's most storied names and is threatening the core of the US and European economies.
After the Dow Jones industrial average ended its worst week in history, plummeting more than 18 percent last week, world leaders scrambled all weekend for a way to unblock money markets before they open today.
At an emergency summit of leaders of the 15 euro-zone countries in Paris yesterday, European governments agreed to guarantee new bank debt until the end of 2009, allowed governments to help banks by buying preferred shares, and vowed to rescue important failing banks through emergency recapitalization.
But it stopped short of a one-size-fits-all solution. It will be up to individual governments to announce how they will implement the measures.
"I want to tell our compatriots in all the countries of Europe that they can and should have confidence," said President Nicolas Sarkozy of France, the summit host.
Sarkozy hoped the momentum from yesterday's meeting wouldn't stop at Europe's borders, and renewed his call for a summit of major world economies to help rebuild an international financial system "to make European ideas triumph."
Jean-Claude Trichet, chief of the European Central Bank, welcomed the unity of Europe's leaders but warned there is more work ahead.
"The force of unity that we showed today is a fundamental element of confidence," said Trichet said. But there is still much for governments and central bankers to do, he added.
European Commission President Jose Manuel Barroso said: "Our analysis isn't of an immediate miracle."
The plan follows Britain's $88 billion plan to partly nationalize major banks and promise to guarantee a further $438 billion of loans to shore up the banking sector.
There was no sum given on how much the EU measures would cost, and Sarkozy said each country would decide how much it would spend.
Prime Minister Gordon Brown of Britain, who met with Sarkozy earlier yesterday, said: "I believe that there is common ground now about what needs to be done, that it has to be comprehensive, and it has to be all countries working together to get to the bottom and solve what is a global financial problem."
Sarkozy said the measures - which also include new accounting rules for banks - will be enacted "without delay" in the 15 countries using the euro.
Today, the governments of Italy, Germany, France, and others will present their individual ways of implementing the measures. The rest of the 27-member EU will have a chance to sign up to the measures when the countries meet Wednesday.
The statement by EU leaders said they agreed to "avoid the failure of relevant financial institutions, through appropriate means including recapitalization."
Governments would guarantee "for an interim period and on appropriate commercial terms" new debt issued by banks for up to five years.
"This scheme would be limited in amount, temporary and will be applied under close scrutiny of financial authorities until Dec. 31, 2009," the statement said.
Sarkozy said the action taken by the leaders yesterday is "not a gift to banks" but an effort to stabilize them through public lending.
Chancellor Angela Merkel of Germany said the measures "will allow markets to start functioning again, that was our aim. It is a strong message to the markets."
As the financial crisis drags down the global economy, world leaders are scrabbling for a way to stop the panic. But efforts to agree on a coordinated global response have stumbled as leaders seek to address the unique challenges of their own countries.
"It's not easy," Sarkozy said. "We have different traditions. For some of us we don't have the same currency. We have different regulators." But, he said, "In a situation of urgency we had to take responsibility." 