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Financial Crisis: EU Leaders In Berlin

  • February 24th, 2009
  • Posted by Daniel Challis

European leaders on Sunday (22.2.09) called for the International Monetary Fund (IMF) to double their resources to $500 billion to help deal with new problems in countries already affected by the global financial crisis.

Officials highlighted the crisis-prevention role of the IMF in dealing with a rapidly spreading downturn in Eastern Europe…

EU SOLIDARITY

The meeting featured expressions of solidarity between EU states and a new emphasis placed on the IMF.

Leaders from France, Germany, Spain, Italy, The Czech Republic and the Netherlands came together to forge a common European position ahead of the G-20 April meeting in London.

Leaders organised both financial and political resources that would allow bailouts of additional European countries if necessary.

French President Nicholas Sarkozy offered support for fellow European countries, but warned that those in need of assistance will have to revise policies.

“If someone needs solidarity, they can count on their partners,” Sarkozy said at the end of the meeting in Berlin.

“Their partners also need to count on them to follow certain basic rules.”

In Eastern Europe, currencies have fallen sharply against the euro as financial markets predict an all-out collapse.

Hungary and Latvia, two EU members that don’t use the euro, have received rescue packages from both the European Union and the IMF.

Economists say the presence of a sufficient rescue plan would convince financial markets to ease pressure on countries, removing the need for emergency action.

GERMANY

Growing concern in Germany over the downturn has added to a shift in its reluctance to bankroll efforts (whether in form of stimulus packages or bank bailouts) due to fear of paying for other countries’ mistakes.

German officials say their economy, which until recently thrived of its booming exports, cannot survive if its neigbours crash.

IMF and World Bank officials said in private to German officials that Berlin was underestimating the degree to which the crisis was affecting the economic integration of Europe.

German finance minister, Peer Steinbruck, said last week that Germany would help finance rescues if needed, despite European treaties setup to encourage fiscal self-reliance.

OTHER NEWS

President of the European Council, Mirek Topolanek met with President of the European Central Bank (ECB), Jean-Claude Trichet, also in Berlin on the Sunday.

The meeting was designed to come up with a plan to restore trust in financial markets and stimulate investments by European banks. 

The Czech Presidency and the representatives of the ECB agreed that excessive recapitalization of European banks by member states could result in re-nationalisation, which could undermine the unity of a common market. 

“We don’t need an increase in national debt, but restoration of trust of both the consumer and the financial institutions can break the vicious circle of the European economy where lower investments reduce the demand for corporate lending”, he said.

Trichet said that without a clear economic forecast, restoration of trust in free-market mechanisms could become complicated.

“We live in non-linear times – the classic economic models and theories cannot be applied, and future development cannot be seen,” he said.

Reference:

Carter Dougherty, International Herald Tribune, ‘Europe pledges more financial regulation and more funds for IMF’ (22.2.09), www.iht.com (24.2.09).

Czech Presidency of the European Union, ‘Topolanek met the President of the European Central Bank‘ (23.2.09), www.eu2009.cz (24.2.09).

Picture:

www.europarl.europa.eu