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15 EU nations unite in bid to prop up banks

The coordinated effort mirrors U.S. and British actions. World markets await details from each of the euro countries.

October 13, 2008|Achrene Sicakyuz and Sebastian Rotella | Times Staff Writers

PARIS — European leaders agreed Sunday on a coordinated rescue plan to guarantee inter-bank lending, inject cash into the banking sector and take other measures to beat back the crisis caused by the global financial meltdown.

At an emergency summit in Paris on Sunday evening, the leaders of the 15 nations that use the euro currency announced a Europe-wide plan to guide and coordinate packages that will be announced by national governments starting today.

The leaders pledged to work together to prop up banks whose credit activities have been all but frozen in recent days, trying to send a strong message of unity and action before financial markets open today.

The package follows a major British initiative, announced last week, to commit about $87 billion for a partial nationalization of the banking sector. On Friday, U.S. Treasury Secretary Henry M. Paulson unveiled a similar plan to take direct stakes in banks and other financial institutions using a portion of the $700-billion financial bailout package aimed at buying distressed mortgage-backed securities.

Asian stocks and U.S. index futures advanced in early trading today on news of the parallel approaches taken by the U.S. and European nations. Investors are eager to see cooperation because even if markets perceive that the situation with European banks is improving, those institutions are so closely linked to their U.S. counterparts that continued pessimism about American banks could undermine European governments' efforts.

The actions come on the heels of meetings in Washington over the weekend of leaders of the world's top economies. The so-called Group of 7 had embraced no coordinated effort to stem the global financial crisis leading into the meetings beyond jointly cutting interest rates Wednesday.

Given the differences in European economies and politics, most experts had viewed a large-scale one-size-fits-all approach as impossible and perhaps even undesirable. Because few details of the programs were disclosed, just how similar the plans are was unclear Sunday night.

The European leaders did not put a price tag on the bailout, saying the numbers would be announced in coming days as national governments unveiled details of their efforts. The 27 member states of the European Union -- 12 of which have not adopted the euro -- will consider the proposal at a summit Wednesday in Brussels.

Sunday's meeting was the first time the heads of state in the 15 nations in the single-currency zone have met since the euro was introduced.

"Instead of tearing us apart, this global crisis has strengthened the necessity of dialogue, understanding and compromise," French President Nicolas Sarkozy said Sunday. "It's not so easy. We don't have the same traditions, for some we don't share the same currency, we have different regulators. And with this crisis, in a few hours, day and night, we've had to learn and understand each other's problems and find a common solution."

Governments will play a central role guided by the EU, according to a statement by the participants. States will guarantee new bank debt through the end of 2009, provide emergency recapitalization to prevent distressed banks from failing and buy preferred shares in financial institutions. European accounting rules will also be relaxed because of the "exceptional circumstances."

"While acting quickly as required by circumstances, we will coordinate in providing these guarantees as significant differences in national implementation could have a counterproductive effect, creating distortions in the global banking markets," the leaders said in a joint declaration.

Prime Minister Gordon Brown of Britain also attended and voiced support for the effort.

"I believe that there is common ground now about what needs to be done, that it has to be comprehensive, and it has to be all countries working together to get to the bottom and solve what is a global financial problem," Brown said after a preliminary meeting with Sarkozy, who has used his hard-charging style to push for an aggressive response to the crisis because France holds the EU presidency.

Britain is a major player in the EU but has retained the pound sterling rather than adopting the euro, a dissonance that is symptomatic of the tensions among member states. Sarkozy said the accord permitted the European Union to overcome one of its inherent problems: It creates a unified, concrete policy while allowing for flexibility to account for differences in economies, laws and cultures in the vast continental entity.

The Europeans want to avoid the discordant image of past weeks in which at times it seemed governments were making solo decisions that undercut others and worsened their economic woes. At the same time, proposals such as creating a central European bailout fund are seen as cumbersome and unrealistic given the differences among countries.

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