EU leaders make vows not plans in face of crisis

The global financial crisis forced European leaders to gather for an emergency summit in Paris. From left to right, Luxembourg's Prime Minister Jean Claude Juncker, Italian Prime Minister Silvio Berlusconi, German Chancellor Angela Merkel, French President Nicolas Sarkozy, British Prime Minister Gordon Brown, European Commission President Jose Manuel Barroso and European Central Bank President Jean Claude Trichet.

The global financial crisis forced European leaders to gather for an emergency summit in Paris. From left to right, Luxembourg's Prime Minister Jean Claude Juncker, Italian Prime Minister Silvio Berlusconi, German Chancellor Angela Merkel, French President Nicolas Sarkozy, British Prime Minister Gordon Brown, European Commission President Jose Manuel Barroso and European Central Bank President Jean Claude Trichet.

Europe’s economies to coordinate responses to help ailing banks

updated 8:18 p.m. ET, Sat., Oct. 4, 2008

PARIS – Europe’s four major powers vowed Saturday to do all they could to prevent Wall Street’s turmoil from destabilizing their banking systems — even as a $48 billion plan to save a German lender fell apart.

But aside from vague statements of intent and calls for tighter regulation, the leaders of Germany, France, Britain and Italy shied away from the sort of massive bailout passed by the U.S. Congress on Friday.

Europe’s four largest economies pledged to coordinate national responses to help banks in distress, but their failure to agree an EU-wide plan reflects divisions in Europe on how to deal with the crisis washing up on the continent’s shores from the United States.

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

The EU’s failure during the past week to pull together on dealing with the crisis has caused worry. Both Ireland and Greece angered their EU neighbors by acting independently and guaranteeing to protect all savings.

The Saturday afternoon summit was arranged hastily with the aim of reassuring jittery markets and investors. A day earlier, U.S. legislators approved a $700 billion government plan to buy up bad debt from banks and help unfreeze lending.

The four leaders — French President Nicolas Sarkozy, British Prime Minister Gordon Brown, German Chancellor Angela Merkel and Italian Premier Silvio Berlusconi — vowed to ensure the soundness and stability of Europe’s banking and financial system, but they gave few specifics.

Instead, they took a swipe at European subsidy rules designed to ensure fair competition by preventing governments propping up failing companies.

Given the “exceptional circumstances,” they said, EU regulators should be flexible on laws that restrict how much governments can give companies in trouble.

European states have pumped billions of dollars into banks to keep them afloat over the last week, trying to assure savers that their money was safe and avert a panic that has frozen lending across the world.

Bank bailout fails
The latest institution to run into trouble was Germany’s No. 2 commercial property lender, Hypo Real Estate Holding AG, which said its $48 billion rescue plan had unraveled Saturday when private banks pulled out. They said they did not want to provide the bank with credit.

The European leaders also demanded more room for maneuver on EU economy rules as European growth slows sharply. A statement distributed after the meeting said guidelines for EU nations to keep budget deficits under 3 percent of GDP “should reflect the current exceptional circumstances.”

France’s deficit is veering near the limit, and other euro nations may also come close or exceed the maximum — reversing recent efforts for the 15 nations that share the currency to reduce debt and deficits.

Easier for the leaders to target were the “golden parachutes” that allow chief executives of failing firms to walk away with millions in leaving bonuses.

Sarkozy, the summit host, said all four nations “pledged that in cases of public support to banks in difficulty, the managers will be punished, and shareholders as well will bear some of the consequences.”

They pledged to help small companies seeking credit by speeding up the release of $41.5 billion in European Investment Bank loans.

Sarkozy suggested that, with the United States focused on its November presidential election, it was important that Europe act to reshape a more responsible global economy.

“We want to put down the foundations of a capitalism of the entrepreneur and not of the speculator. We want transparency, we want moralization. We want the creation of value. We want people to have confidence,” he said.

But he recognized the need for global cooperation, calling for a summit of world leaders to tighten control over hedge funds and other high-risk investment funds that don’t currently face all the same rules as banks and insurers.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
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One response to “EU leaders make vows not plans in face of crisis

  1. The European’s are not know for acting quickly or decisively on anything, many are also, whatever they say publicly, very nationalistic. However, in the current crisis which is so interlinked, there is a need for a strong, unified response, the last thing anyone needs now is a nationalist approach.

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