The U.S. financial crisis has been spreading rapidly to and is now looming over Europe, and People's Daily desk editors Xu Buqing and Peng Min conferred on this issue with three PD overseas resident reporters: Li Yongqun in Belgium, Liu Huaxin in Germany and Wang Rujun in Britain.
Desk editor: To cope with a deteriorating financial crisis, some member nations of the European Union (EU) hold that they should coordinate actions for a joint response. But when they come to concrete actions, however, they found themselves with the lack of EU-wide overall coordination. Then, we would like to have your views on this topic.
Li Yongqun: Finance ministers from the 27 EU member states met on Tuesday or October 7th and agreed to raise minimum deposit guarantee to 50,000 euros, so as to help stabilized the financial market and protect the interests of saving depositors. EU will guarantee private bank deposits to this minimum level "at least" for a year, according to a statement they issued at the routine monthly meeting.
Financial crisis has posed a severe test for the banking systems of EU member nations. To save their banks on the verge of bankruptcy due to the punch or assaults from financial storm, some major EU members have resorted to a large-scale fund injection or to "rescue the (financial) market" via means of nationalization in the past 10 days. Benelux countries, namely the Netherlands, Belgium and Luxemburg, injected 11.2 billion euros in troubled Fortis bank, and the Dutch government will take a 49 percent stake in the Dutch arm, the Fortis Bank Nederland Holding; Britain nationalizes the mortgage bank Bradford & Bingley; the French, Belgian and Luxemburg governments have agreed to inject 6.4 billion euros of emergency funds in Dexia bank; the Irish government guarantees all deposits in Irish banks following the decision to ensure or safeguard six banks' liabilities; and he German lender Hypo Real Estate (HRE) has also secured a credit line from the German government, etc.
Liu Huaxin: The rescue bid for HRE, which is based in Munich, was the largest in German history and came after the bank was sucked into the global financial turmoil by its inability. The German government and the banking sector agreed in late September to provide a guarantee for the replayment of the 35-billion-euro loan. Afterwards, on Monday, October 6th, the German government along with banks and insurance companies agreed on a new 15 billion Euro bailout plan for the banking sector, but Germany's DAX index still dropped 7.07 percent to close at 5387.01 that day.
Since the outbreak of this round of financial crisis, the German government has come out repeatedly to intervene and its capability for intervention and authorized power are, nevertheless, limited.
Wang Rujun: Since the sub-prime mortgage loan crisis occurred last year, the British banking sector has been fraught with perils and the (Gordon) Brown government has taken a range of emergency measures to respond to the crisis:
First of all, it has made quick, resolute moves to rescue financial magnates. The Brown government firstly urged Lloyds bank to buy HBOS for 12.2 billion British pounds (22.2 billion US dollars) and then took over Bradford & Bingley for 50 billion pounds. Two deals were made in less than two weeks and this gave a cardiac stimulant to the London banking center.
Secondly, it has injected an ocean of funds, beefed up monitoring or supervision, and proceeded to stabilize the market; thirdly, it has further improved the mechanism of leadership and boosted the morale and will of the people and, finally, it has sought international cooperation and joined hands in concerted efforts to overcome the crisis.
Desk editor: At present, is EU capable of rescuing its banking industry, which has inflicted devastating, severe blows, so that it would tide over the current financial crisis smoothly?
Li Yongqun: The above mentioned measures some EU member nations have taken have at least violated the EU's relevant rules of competition. For instance, Ireland recently made a decision to guarantee all the savings at Irish-owned banks. The unilateral move by the Irish government angered other EU countries, notably Britain, which worried about a flurry of savings withdrawals from their own banks to Irish peers.
In view of a high degree of mutual dependence among European banks, acknowledge some noted economists in Europe, EU has to make systematic responses to this systematic banking crisis.
Liu Huaxin: To date, Hypo Real Estate, or HRE based in Munich alone would need a shortfall of up to 50 billion euros by the end of 2008 to ensure financial stability, but the short-term effect is not so good due to severe damages that have been done to the market confidence. Moreover, in order to console ordinary citizens, both German Chancellor Angela Merkel and Finance Minister Peer Steinbruck said that their government would guarantee the deposits of all private savings in the country. As a matter of fact, the financial market, especially the stock market in Germany, is rather instable.
However, Germany has all along underscored an increased cooperation apart from stepping up supervision. The nation still opposes to the establishment of an EU-wide rescue plan today nevertheless.
Wang Rujun: British Prime Minister Gordon Brown reshuffled his government last Friday or October 3rd and Peter Mandelson was brought back into his cabinet. Meanwhile, a new national economic council (NEC) has been created which is designed to "change the way we govern" during the period of economic upheavals at present. On Monday, or October 6th, Prime Minister Brown again emphasized that his government would take all measures to rid itself off the current crisis.
With regard to common saving depositors, bank savings of up to 50,000 pounds per customer claim has been guaranteed by the British government as of this week from a claim of 35,000 pounds in the previous weeks, and the sum could be further increased as regulators battle to restore confidence in the banking sector. Furthermore, after Ireland, Germany and Greece have pledged to guarantee all saving deposits, the British government is also reported to be mulling over the same or similar measures.
Desk editor: Is the European economy has been negatively affected as an entity, and whether measures some EU nations have so far taken viable and effective?
Li Yongqun: The European central Bank (ECB) in Frankfurt and its counterparts on Tuesday or October 7th provided extra funds one day after the worldwide stock market slide wiped more than 2 trillion dollars of investors' wealth. The ECB on Tuesday loaned banks 250 billion euros (339 billion US dollars) in seven-day funds, six times more than it initially estimated would be needed.
Wang Rujun: the entire British economy has been implicated seriously, as the financial crisis has exerted a far-reached impact. On Sunday, or October 5, British Treasury Secretary Alistair Darling said that the government was prepared to take some "pretty big steps that we wouldn't take in ordinary times" to help restore financial stability.
At the same time, an interest cut from five percent to 4.75 percent is possible at the Bank of England on Thursday, October 9th.
By People's Daily Online
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