By Craig Whitlock and Mary Jordan
Washington Post Foreign Service
Wednesday, October 1, 2008
BERLIN, Sept. 30 -- Central bankers and elected leaders around the world acknowledged Tuesday that they lacked a comprehensive strategy to protect their countries from the global financial crisis and were as dependent as ever on Washington to come up with a solution.
In Europe, France and Belgium propped up another failing bank Tuesday, and French President Nicolas Sarkozy invited his counterparts from Britain, Germany and Italy to an emergency summit. But officials, exasperated by the defeat of the $700 billion rescue plan in Washington, said they were quickly realizing how little power they had to act on their own to confront a rising threat to their economies and financial markets.
"The Americans have no choice," Christian Noyer, head of the French central bank and a member of the governing council of the European Central Bank, told Germany's RTL radio network. "We must have a comprehensive solution."
Added Patrick Steinpass, chief economist for the German Savings Bank Association: "All I can say is that I simply cannot imagine that the Americans will not come up with some sort of a solution. Anything else is outside the realm of my imagination."
In the meantime, banks continued to fail and markets quivered. Dexia, a lender on the verge of collapse, received a $9.2 billion bailout. It was the fifth time since the weekend that European governments have been forced to rescue a threatened institution, shattering the confidence expressed by many officials as recently as last week that their banks would ride out the crisis comparatively unscathed.
Japan's benchmark Nikkei stock average fell by more than 4 percent Tuesday, closing at its lowest level in more than three years. Trading was suspended in Russia for two hours in response to heavy losses, although markets there later recovered. Other major indexes bounced back from heavy losses Monday, with exchanges in London, Paris and Frankfurt, Germany, posting modest gains.
Major Latin American markets regained lost ground Tuesday, as the Dow Jones industrial average rose 485 points.
In India, politicians assured nervous investors that their accounts were safe. "There is nothing to worry about the Indian market," Finance Minister P. Chidambaram said at a news conference. He noted: "We are suffering the consequences of turbulence around the world."
But anxious customers began to withdraw money from India's largest private bank, ICICI, in what analysts called a lack of faith in institutions that lack government backing.
Economic experts in New Delhi advised India's central bank to make more cash available to lenders to ease a credit shortage and restore investor confidence. Indian companies are mired in a liquidity crunch. Foreign investors -- who have been pulling out of road-building, information technology and real estate projects -- fund many private businesses.
"India and other emerging economies are not isolated, and the idea that they are is a real myth," said Rajiv Kumar, chief executive of the Indian Council for Research on International Economic Relations. "What we see happening is investors from abroad pulling back their investments to improve their balance sheets back home. That offers a real picture of doom and gloom for emerging markets like India."
Smaller countries also tried to calm jittery markets. In Ireland, Finance Minister Brian Lenihan announced a plan to guarantee deposits in domestic banks, without limit, for the next two years. The proposal lifted the Irish stock market after it had dropped by 13 percent Monday. "What we're guaranteeing here is the lifeblood of the banking system," Lenihan said. "Were liquidity to dry up in the Irish banking system in the weeks ahead, the inevitable result would be economic catastrophe for this country."
Lenihan called on the European Union to agree on a "common standard of protection" for bank deposits. "We are a small, exposed economy," he said of his country, "more globally exposed than any economy in the E.U."
In recent days, France's president has conducted a flurry of meetings and speeches to address the credit crisis. But Sarkozy has not come up with any concrete proposals to restore order in the markets or prevent other bank failures.
His aides conceded Tuesday that for the moment, the French government was mainly occupied with trying to head off catastrophe.
Last week, Sarkozy proposed holding a global financial summit by the end of the year, after the U.S. presidential election. But reports in Paris said the idea stalled after he received a lukewarm response from President Bush.
Meanwhile, Sarkozy called in the chief executives of nine major French banks to meet with him at the Elysee Palace on Tuesday morning along with Prime Minister François Fillon, Finance Minister Christine Lagarde and Noyer, the Bank of France chief. The main purpose was to ensure that the crisis does not choke the French economy by cutting off credit to businesses and consumers, according to Sarkozy aides.
Georges Pauget, director general of Credit Agricole and head of the French Banking Federation, tried to reassure shareholders and depositors after the meeting, saying the government is ready to act if necessary to bolster weak banks. "The whole French array is solid, diversified, and it benefits from the support of public authorities."
The summit that Sarkozy called for Tuesday would bring together political leaders of the Western European members of the Group of Eight industrialized countries. As described in Paris, the meeting would help restore confidence in European banks and lay the groundwork for a broader international conference to revamp the world monetary system.
Many European leaders said they were horrified at the political infighting that has marked the U.S. Congress's handling of the rescue plan. "I feel they've taken leave of their senses," said Peter Mandelson, the E.U. trade commissioner. "I hope that in Europe, we will not see politicians and parliamentarians replicating the sort of irresponsibility and political partisanship that we have seen in Washington."
In Britain, Prime Minister Gordon Brown called Monday's vote in the House "very disappointing." His chief rival, David Cameron, leader of the Conservative Party, said Europe needed to learn from Washington's mistakes. "Today is a time for us to send a clear message to our political opponents and the country: Let us not allow the political wrangling that took place in America to happen here," Cameron said.
Britain is drafting legislation that would make it easier for the government to step in and save failing lenders. The government is also considering a plan to guarantee private bank deposits up to $90,000, up from the current maximum of $63,000.
So far, however, the European approach has been fragmented. Only 15 of the 27 E.U. member countries use the common currency, the euro.
Lacking ability to fashion a unified response, officials at the headquarters of the E.U. in Brussels pointed their fingers back at Washington, alternately lecturing and pleading with their U.S. counterparts to act.
"The United States must take its responsibility in this situation, must show statesmanship for the sake of their own country and for the sake of the world," Johannes Laitenberger, a spokesman for the European Commission, told reporters.
In Berlin, Chancellor Angela Merkel said it was "of incredibly great significance" that Congress approve a rescue plan by the end of the week, calling it "the precondition for creating new confidence on the markets." Merkel's comments came as German financial officials were finalizing an emergency $51 billion rescue of the country's second-largest commercial property lender, Hypo Real Estate Holding.
Hypo nearly collapsed over the weekend, just days after German Finance Minister Peer Steinbrueck declared that the country's banking sector was "extremely stable" and that the credit crisis was primarily "an American problem."
Last week, Germany and other countries rejected feelers from the U.S. Treasury Department about coordinating a global rescue of ailing banks. But there were signs that European opposition was fading.
Steffen Kampeter, a parliamentary leader on budget issues for Merkel's Christian Democratic Party, said German lawmakers might be receptive to such an approach if Congress is unable to act in the next few days. "This was and is a global problem that requires international solutions," he said. "We expect a signal from the Americans for what type of strategy to follow."
Ordinary Europeans said they, too, were counting on Washington.
"We are looking to America to shine a light, to find a resolution forward, and quick," said Ivan Hallworth, 45, a computer salesman interviewed in a bookstore in central London.
"We're all focusing on Congress and what's happening and looking to America for leadership," he added. "We have every confidence America will pull through."
Jordan reported from London. Correspondents Edward Cody in Paris and Emily Wax in New Delhi and special correspondents Shannon Smiley in Berlin and Karla Adam in London contributed to this report.