[Marxism] Europe handing $2.3 trillion to banks

["Fred Feldman" <ffeldman@xxxxxxxxxxxxxxxx>]

http://www.msnbc.msn.com/id/27137551/print/1/displaymode/1098/

Europe puts $2.3 trillion on line for banks 
U.K. to inject $63 billion into British banks; overseas markets soar 
The Associated Press
updated 1:53 p.m. ET, Mon., Oct. 13, 2008
PARIS - European governments overcame their differences to put $2.3 trillion
on the line Monday in guarantees and other emergency measures to save the
banking system in their most unified response yet to the global financial
crisis.

The pledges by six countries that use the euro and Britain helped soothe
stock markets, along with a promise by top central banks to provide
unlimited short term dollar credits.

The amount - pledged by Germany, Britain, France, the Netherlands, Spain,
Portugal and Austria - dwarfs the $700 billion rescue package put together
by U.S. President Bush's administration, although not all the European money
will necessarily be spent.

It represented Europe's most unified response yet to the financial crisis,
after weeks where European governments often acted at cross purposes and
sniped at each other - a piecemeal approach that failed to stop steep and
frightening slides on financial markets.

"The time of each one for itself is fortunately over," French President
Nicolas Sarkozy said, following a Cabinet meeting that approved France's
spending in the framework of the scheme.

"United Europe has pledged more than the United States," added the French
leader, who has taken a lead in corralling European governments to act
together.

Meanwhile Monday, the British government injected another $63 billion into
some of the country's leading banks Monday to avoid a full-scale collapse of
the sector.

In return for the rescue, the Royal Bank of Scotland Group PLC, Lloyds TSB
Group PLC and HBOS PLC will cede major stakes to the government and halt
cash bonuses for bank board members this year. The banks also will be
required to lend more money to small- and medium-sized businesses and
homeowners in a bid to rescue the country's housing market.

"The action we are taking today is unprecedented but essential to all of
us," said British Prime Minister Gordon Brown. "We must in an uncertain and
unstable world be the rock of stability upon which people can depend."

A handful of senior executives resigned from the banks, where the government
will now have the right to appoint board members and fix dividends.

The deal will leave taxpayers owning as much as 60 percent of RBS and 43.5
percent of the merged Lloyds HBOS bank - the two are in the process of
combining.

The government said its stake in each of the banks is strictly temporary,
but the subsequent transformation of the sector is on the massive scale of
the postwar bank nationalizations in the 1940s and the privatization of the
industry in 1980s.

"The hope is that today will mark a watershed, with vast measures of
government reassurance finally rekindling some confidence in the shattered
banking sector," said Keith Bowman, equity analyst at Hargreaves Lansdown
Stockbrokers.'


European plan
The money pledged by European governments will not go into a collective pot.
Instead, governments were deciding individually how much to commit to
supporting their own banks under broad guidelines agreed at a summit on
Sunday. The sums are considered a maximum, and might not all be spent if the
financial crisis eases.

About 250 billion euros ($341 billion) of the European pledges was earmarked
to be spent on recapitalizing banks by buying stakes.


The money pledges put a price tag on the package agreed to Sunday by the 15
countries that use the euro currency. They agreed to individually guarantee
bank refinancing until the end of next year, rescue important failing banks
through emergency cash injections and take other swift measures to encourage
banks to lend to each other again.

Stocks markets rebounded Monday after the European decision and other
weekend efforts to find solutions to the financial crisis, which has crushed
major banks in both the U.S. and Europe and battered stock exchanges
worldwide.

Germany's DAX rose 518.14 points, or 11.4 percent, to close at 5,062.45,
while France's CAC-40 was up 355.01 points, or 11.2 percent, at 3,531.50.
Britain's FTSE 100 was 324.84 points, or 8.3 percent, higher at 4,256.90,
despite some hefty falls in the banks that have accepted government help.

Also helping markets was a joint move by the U.S. Federal Reserve, the
European Central Bank and the Swiss National Bank to provide unlimited
short-term credit in U.S. dollars to financial institutions. The Bank of
Japan said it was considering similar measures.

Europe's biggest economy, Germany, put together a rescue package worth as
much as 500 billion euros ($671 billion) to shore up the country's financial
system. "We are taking drastic action, no question about it ... so that what
we have experienced is not repeated," German Chancellor Angela Merkel told
reporters.

Sarkozy said the French government would provide up to 360 billion euros
($491 billion) to help banks, most of that in guarantees for bank
refinancing. The Netherlands put up 200 billion euros ($273 billion) to
guarantee interbank loans.

Austria's government offered up to 85 billion euros ($116 billion). Spain
said it would guarantee up to 100 billion euros ($135 billion) in a bank
bond issuance this year. Portugal guaranteed 20 billion euros ($27 billion)
euros - nearly 12 percent of annual GDP - to encourage Portuguese banks to
lend to each other.

Italy did not earmark a specific amount but Finance Minister Giulio Tremonti
told reporters the government would offer "as much as necessary."

The European moves are modeled on Britain's 50 billion-pound ($88 billion)
plan to partly nationalize major banks. Prime Minister Gordon Brown has also
promised to guarantee a further 250 billion pounds ($438 billion) worth of
interbank loans to restore confidence in the financial sector.

The head of the International Monetary Fund welcomed the European decision
despite the high price it is expected to impose on state budgets.

"We must recapitalize the banks ... otherwise everyone will suffer,"
Dominique Strauss-Kahn said on France's Europe-1 radio Monday. "And that
costs money."

The euro zone leaders who met Sunday have yet to sell their packages to
voters at home, and analysts warned that governments and legislators could
still balk. The overall cost will be heavy, especially on countries already
in or on the brink of recession.


Analysts from the banking sector generally saluted the euro zone measures.
"After a haphazard start, Europe is finally getting its act together," Bank
of America said in a research note. "The size and nature of the national
plans suggest that they could finally make a difference."

The rest of the 27-member EU will have a chance to sign up to the euro-zone
measures when they meet Wednesday.


Norway, outside both the euro zone and the EU, said it plans to offer new
government bonds worth 350 billion kroner ($55.4 billion) to banks to help
improve liquidity in the market.

In Sweden, Finance Minister Anders Borg said the government plans to put
forward a draft law Wednesday to guarantee new bank debt until the end of
2009 and support banks with added share capital.

BusinessEurope - a group representing most European major companies - said
EU governments' parallel moves to unfreeze bank lending would help
"reinforce confidence and contribute to a continued flow of credit to
companies and households."





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