European leaders vow Bank guarantees, bid to stop financial rot

[Skip to the end]

Hopefully this will buy some time to hope for a general recovery of output and employment that contains the national deficits.

This plan is also coordinated but still relies on the national government’s balance sheets.

European Leaders Vow Bank Guarantees, Bid to Stop Financial Rot

By James G. Neuger

Oct. 12 (Bloomberg) — European leaders agreed to guarantee bank borrowing and use government money to prevent big lenders from going under, trying to stop the financial hemorrhage and stave off a recession.

At a summit chaired by French President Nicolas Sarkozy, leaders of the 15 countries using the euro offered their most detailed battle plan yet for bandaging the crippled credit markets and halting panic among investors.

The key measures announced today are: a pledge to guarantee new bank debt issuance until the end of 2009; permission for governments to shore up banks by buying preferred shares; and a
commitment to recapitalize any “systemically” critical banks in distress.

All good, but depends on national governments for funding.

France, Germany, Italy and other countries will announce national measures tomorrow, Sarkozy said.

A communiqué gave no indication of how much governments are willing to spend or the size of bank assets deemed at risk,

Or how much the national governments are able to spend before markets stop funding them.

leaving unclear the ultimate cost to the taxpayer.

Also, these are not fiscal measures that directly add to demand.

Nor do they address the need to fund in USD which the eurozone nations don’t have.

[top]