Earlier versions of this article, including in the print edition of The Washington Post, carried the wrong dateline. The article was written Oct. 12.
Europe Unified On Proposal to Protect Banks
Monday, October 13, 2008
PARIS, Oct. 12 -- Governments around the world took unprecedented steps Sunday to rescue the global financial system, with major European powers unveiling a united plan to prevent further bank failures while Australia and New Zealand moved to calm panicked investors by guaranteeing deposits before stock markets opened in Asia.
With the newly decisive moves, other major nations are catching up to or surpassing the United States in sculpting a response to the crisis, which crashed stock markets last week and is threatening a broader collapse of the world's interconnected banking system. Although Congress has given the Treasury Department wide authority to intervene in financial markets with a $700 billion bailout plan, officials are still trying to figure out how best to execute it.
This morning, Assistant Treasury Secretary Neel Kashkari, who has been tapped to orchestrate the bailout, is scheduled to give a speech in Washington on the giant rescue package.
In addition to Australia and New Zealand, the United Arab Emirates guaranteed all deposits with local banks yesterday, including the country's two largest lenders, Emirates NBD and National Bank of Abu Dhabi, to ensure that credit continues to flow. This follows moves by some European countries, including Ireland and Germany, to remove or raise the limit on deposit insurance. The United States also increased guarantees for banking deposits from $100,000 to $250,000.
In Europe, where dissent over how to handle the crisis has added fuel to investor panic in recent weeks, leaders presented a unified response for the first time. At an emergency summit of the 15 countries that use the euro, the continent's major economic powers agreed Sunday to offer government guarantees for troubled banks trying to raise funds and pledged that public money would be used aggressively to make sure no European bank is allowed to fail.
Europe's vow to temporarily guarantee bank debt -- a measure aimed at restoring flows of credit between financial institutions afraid to lend to one another in the current climate -- goes beyond what U.S. officials have promised. The euro jumped 1.1 percent against the dollar in Asian trading late Sunday.
In a show of unity, British Prime Minister Gordon Brown joined leaders here for part of their meeting even though his country has not adopted the euro as its national currency. Brown planned to announce Monday an $86 billion package of credit guarantees and bank-recapitalization plans that many are calling a partial nationalization of the British financial system. In recent days, the U.S. Treasury has also shifted toward a plan to have the government infuse capital in exchange for part-ownership.
The Sunday Times reported that Brown's package would include the government taking a majority share in the Royal Bank of Scotland and the Halifax Bank of Scotland, two of Britain's largest banks.
Officials in Paris said the Europe-wide plan adopted by the 15 countries in the euro group was inspired by British measures, suggesting that Europeans were also ready to buy into troubled banks heavily to prevent them from failing.
"This is indeed a common action that we are taking," French President Nicolas Sarkozy, who holds the European Union's rotating presidency, said in announcing the accord at the Elysee Palace.
The agreement was only a framework -- "principles and orientations," according to Jean-Claude Trichet, head of the European Central Bank -- and each government planned to take specific steps on a national level, according to its own interpretation of what should be done to bolster its banks, Sarkozy said. In that regard, the outcome was similar to an agreement reached Saturday in Washington by finance ministers of the Group of Seven industrial nations.
Sarkozy also called a special meeting of his government for Monday morning to outline his country's plans.