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EU Intervention in Crisis Brokering

  • October 17th, 2008
  • Posted by Daniel Challis

eustory1.jpgThe latest in the constant and urgent consultations on the global financial crisis, has seen Nicolas Sarkozy and Jose Manuel Barroso (as Presidents respectively of the European Council,and Commission — picture), meeting US President George Bush at Camp David (17-1810.08).

They have been a world-wide summit, and as Daniel Challis reports, it will come as the European Union records some progress towards a unified position among its diverse member governments.

The European Union achieved some unity, coming up with the outlines of a ‘tax-payer friendly’ answer to the crisis, despite initial differences among the member states.

Main principles of the program were set out at a Finance Ministers’ Council (07.10.08), which included a declaration they would be watching “the interests of taxpayers”.

The Council was quick to stress not only the need for decisive action but also the importance of stabilising the banking systems and protecting individual depositors.

Britain, France, Italy and Germany all came together three days beforehand for a coordinated response despite their own national rescue plans.

The four nations identified specific needs including better supervision and regulation of banks lending habits, and to discourage excessive risk-taking by investors.

The main thrust of the rescue package however was 50,000 euros for deposit insurance for investors; an amount brought down from 100,000 euros due to Eastern European countries saying they could not afford to compensate people based on that amount.

British Prime Minister Gordon Brown was one to call for greater supervision of money markets and said the IMF needed to be “rebuilt” to help monitor the world’s financial systems.

But despite the cohesion Europe was initially divided in its overall plan of attack.

In the council meeting, Italy’s finance minister suggested EU states place a percentage of their GDP into a EU fund for saving domestic banks; a proposal quickly objected to by some eastern European countries that said they wouldn’t be able to commit to the rescue melting pot.

French Prime Minister François Fillon said banking supervision was best done within individual countries, as national authorities know their own financial sector better than outsiders.

German finance minister Peer Steinbruck told German radio, “We as Germans do not want to pay into a big pot where we do not have control and do not know where German money might be used.”

Indeed, the financial crisis is filtering down to all European countries, which have such a diverse range of financial needs; it is difficult to coordinate a plan on so many fronts.

Despite this, most recently, the 27 EU nations endorsed a 1.7 trillion euro continent-wide bailout for the banking sector.

European shares fell heavily most recently in the morning trading, recovered and then plunged again at the end of the day.

London’s FTSE 100 index was down 5.35 per cent, Frankfurt’s DAX 30 shed 4.91 per cent and the Paris CAC-40 5.92 per cent.

EU and French president Nicolas Sarkozy has called for another G8 summit in early to mid November to combat the deepening crisis.

Reference: – Financial Times – Associated Press – European Union

Picture: France’s President Nicolas Sarkozy and European Commission President Jose Manuel Barroso attend a news conference at the most recent European Union summit in Brussels, Belguim (October 16th).