October 13, 2008
No-one could write the script of the financial meltdown drama that continues to unfold.
The story so far:
- The US $700bn bail-out did not stabilise the stock markets.
- The UK came up with a far more ambitious rescue plan, and at £500bn one commensurately much larger than the American equivalent, taking into account the relative sizes of the two economies.
Enter centre stage the hitherto beleaguered Gordon Brown, staring in the face of a landslide Conservative election victory in two years’ time, the former British finance minister who did not disguise his distaste at having to attend meetings of EU Finance Ministers.
But he met yesterday à deux with President Nicolas Sarkozy at l’Elysée, and was then invited to attend part of a meeting of the 15 Member State Eurogroup, which, broadly replicated Brown’s UK rescue plan by devising a concerted European action plan of the Euro area countries, so that the EU as a whole can act in a united manner, which requires the Union and Euro area governments, central banks and supervisors to agree to a coordinated approach aiming at :
– ensuring appropriate liquidity conditions for financial institutions
– facilitating the funding of banks, which is currently constrained
– providing financial institutions with additional capital resources so as to continue to ensure the proper financing of the economy
– allowing for an efficient recapitalisation of distressed banks
– ensuring sufficient flexibility in the implementation of accounting rules given current exceptional market circumstances
– enhancing cooperation procedures among European countries.
In the current exceptional circumstances, the need was stressed for the Commission to continue to act quickly and apply flexibility in state aiddecisions.
This emergency summit was the first time that the Eurogroup prime ministers/heads of government have ever met: Commission President Barroso and ECB President Trichet also attended. President Sarkozy was the motor behind this initiative which marks an extraordinary and very welcome step forward by the EU.
The markets have responded positively. While it is still to early to predict ultimate success of the plan, it is clearly better than the US intitiative. European action also impliedly calls in to question the decision of Hank Paulson not to rescue Lehman Brothers.Author : Stanley Crossick