Eurozone Countries Agree Bank Rescue Plan

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The three key components of the plan are

• Countries will inject capital into their banks if necessary by buying preference shares
• Countries will guarantee interbank leading until the end of next year
• The European Central Bank will attempt to boost liquidity

The eurozone states have based their plan on the £500 billion (US$865 billion) UK plan announced last week. UK Prime Minister Gordon Brown attended the eurozone meeting even though the UK is not a member.

Germany has approved a package worth up to 500 billion euros ($678 billion). German Chancellor Angela Merkel said the package, “will serve the financial system,” and will protect citizens, “not just ... the banking system.” She said there needed to be, “robust regulation to curb market excesses,” in order for the plan to work.

France will make up to 360 billion euros ($488 billion) available to implement the plan. French President Nicolas Sarkozy said the French government, “will not let a single bank go bankrupt.” He warned that the management of a financial institution in serious difficulties would be replaced. Later Sarkozy pointing out that, “a united Europe did more than the United States in terms of the amounts made available.”

Spanish Prime Minister Jose Luis Rodriguez Zapatero announced his government would underwrite up to 100 billion ($136 billion) euros in inter-bank loans. Portugal has offered a 20 billion euro ($27 billion) guarantee, the Netherlands has pledged 200 billion euros ($271 billion) and Austria, 85 billion euros ($115 billion). The remaining eurozone members to will make announcements before the European Union summit in Brussels on Wednesday.

The UK announced today that it would pump £37 billion ($64 billion) into three banks, Royal Bank of Scotland, Lloyds TSB and HBOS, taking large stakes in them. Prime Minister Brown said, “We must create a new international financial architecture for the global age.” He called for, “a new Bretton Woods.” The agreement that set up the International Monetary Fund, the General Agreement on Tariffs and Trade (GATT) and The World Bank after World War II.

The head of the International Monetary Fund, Dominique Strauss-Kahn, described the plan as helpful, saying, “I think that we now have a comprehensive response to the crisis.” He predicted a positive response from the markets. European Commission president Jose Manuel Barroso also predicted the plan would end, “the excessive pessimism of the markets.”

Stock markets around the world indeed responded positively to the plan along with other positive news. On Oct 13, the UK FTSE 100 and US Dow Jones gained eight percent. The German Dax index gained 11.4 percent and the France Cac40 markets gained more than 11.2 percent.