VARIOUS: German, French and Spanish governments announce crucial bank rescue packages

Record ID: 491365

  • Title: VARIOUS: German, French and Spanish governments announce crucial bank rescue packages
  • Date: 14th October 2008
  • Summary: (W3) PARIS, FRANCE (OCTOBER 13, 2008) (REUTERS) FRANCOIS FILLON, FRENCH PRIME MINISTER, ARRIVING AT ELYSEE PALACE FOR COUNCIL OF MINISTERS MEETING VARIOUS OF CHRISTINE LAGARDE, FINANCE MINSTER, ARRIVING ERIC WOERTH, BUDGET MINISTER, ARRIVING JOURNALISTS OUTSIDE ELYSEE PALACE
  • Embargoed: 29th October 2008 12:00
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  • Topics: Finance,Domestic Politics
  • Reuters ID: LVA27KHH8Z0OX9V0KYDUEALQCILN
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  • Story Text: Germany, Spain and France followed in the footsteps of Britain on Monday (October 13) and announced massive financial rescues as governments across Europe stepped in to shield banks and restore confidence in the face of the worst financial crisis in nearly 80 years.
    The German cabinet approved a rescue package that will provide 400 billion euros ($543.4 billion U.S. dollars) in bank guarantees and a further 100 billion euros in state funds to recapitalise banks.
    At a news conference in Berlin German Chancellor Angela Merkel said it was the state's role to control excesses in the markets.
    "The state is the guardian of order. With the first and second building blocks of a new financial markets constitution we are clearly taking hard measures," she said after the cabinet meeting.
    French President Nicolas Sarkozy, who hosted a euro area summit with Britain on Sunday (October 12) which agreed on the coordinated action, said France would create two funding vehicles with up to 320 billion euros to guarantee bank lending and 40 billion euros to provide capital to banks in need.
    The President told a news conference at the Elysee Palace that they confronted "an unprecedented crisis, which threatens to paralyse the world economy".
    "Confidence therefore must be established as quickly as possible," he added.
    Earlier Britain waded in with 37 billion pounds ($63.85 billion U.S.
    dollars) of taxpayers' cash to bail out three major banks.
    In Spain, the government also passed laws on Monday to guarantee bank debt issued up to the end of next year and said it would buy shares in institutions if the need arose, in measures agreed by European governments to bolster banks.
    Prime Minister Jose Luis Rodriguez Zapatero told a news conference the government would guarantee debt issued to the end of 2009 with maturities up to a maximum five years.
    The limit for the remainder of this year is 100 billion euros ($135.9 billion U.S. dollars) but no figure has been agreed for next year and it will have to be included for debate in the 2009 budget bill, Zapatero said.
    "We consider this initiative of vital importance to grant the normal function of the economic sector," he told journalists in Madrid.
    So far, Spanish banks have withstood the global financial crisis better than their peers, thanks to conservative regulation which prevented them from dabbling in the complex financial instruments which became popular elsewhere.
    The drastic steps around Europe on Monday were a crucial test of investor faith in the ability of European governments to get a grip on the global financial crisis after they promised coordinated rescue packages at the emergency summit in Paris on Sunday.
    Initial reaction was positive. Stock markets across Europe rallied on the outcome of the 15-nation euro zone summit, designed to restore trust in the banking system and rekindle frozen interbank lending.
    But Russia's rebound was short-lived.
    Moscow's RTS exchange halted stock trading as stocks fell, shedding early gains and prompting Prime Minister Vladimir Putin to pledge that companies of strategic importance in the "real economy" would get government corporate refinancing.
    Sweden, which is not in the euro zone, said it would introduce legislation soon to safeguard its financial system, but saw no need to inject capital in its banking sector.
    And Iceland, hardest hit by a wave of bank failures, showed signs of softening its long-standing opposition to applying for European Union membership in hopes of anchoring the sparsely populated north Atlantic island to a pole of stability.
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