Europe spends trillions in historic bank rescue
In a violent swerve away from
the laissez-faire capitalism that has underpinned Western society for the past three decades, EU states on Monday outlined the details of a historic state bail-out of Europe's financial sector.
The total size of the rescue promise remains fuzzy, with newspapers across the continent totting up the the mind-boggling sums announced in slightly different ways.
But Europe has so far announced the release of around €2 trillion to save banks from collapse in the biggest government intervention in markets since the creation of the post-war welfare state.
On Monday afternoon, the governments of Austria, France, Germany, the Netherlands and Spain unveiled bail-out packages that hovered near the annual public spending budgets of the countries involved.
Germany promised its financial sector up to €500 billion. France, €360 billion. The Netherlands will spend €200 billion and Spain and Austria will each dole out €100 billion a piece. The sums come atop the €640 billion (?500bn) already announced in the UK.
Meanwhile the 10 other members of the eurozone - along with Sweden and Poland - were preparing bail-out announcements to be made ahead of the start of the European summit on Wednesday.
The bail-outs are to be modeled on the €640 billion UK scheme, which comprised three elements: a guarantee of bank debts, a flush of liquidity via short term loans and a partial-nationalisation of the banks through the purchase of equity in the institutions
The amounts apportioned to each element vary from country to country, tailored to the specifics of the crisis as it appears in each member state, although the bulk of the funds are earmarked for bank debt guarantees.
In what could be described as a defibrillation of an economy in cardiac arrest, the plans hope to shock banks into lending to each other and other businesses again. Earlier, failed efforts focussed on deposit guarantees and central bank injections of liquidity.
"United Europe has pledged more than the US," French President Sarkozy said, as he announced the €360 billion his country plans to put forward for approval by the French parliament later this week. Some €40 billion of the money will be spent on purchasing parts of weak banks.
"Nothing will be spared to prevent the crisis getting any worse," he told reporters.
Devil and detail
Germany is to spend most of its announced funds on guaranteeing medium-term lending between banks, with €70 billion set aside for bank recapitalisation, a figure that could be increased by a further €10 billion if needed.
Some €85 billion in Austria will be used to guarantee interbank lending and the rest for bank recapitalisation, while Spain is to focus on guaranteeing bank debt. The banking sector in the Iberian country, as in France, is believed to be in a stronger state than the rest of Europe - despite the implosion of the Spanish housing market - with Madrid saying yesterday that no funds have to be spent on bank share purchases.
Dutch Prime Minister Jan Peter Balkenende announced €200 billion in inter-bank loans.
Italy has yet to announce the details of its package, although Italian finance minister Giulio Tremonti said his country was ready to spend "as much as necessary," while the Italian central bank will purchase up to €40 billion of banks' debt.
Portugal has already announced a €20 billion loan-guarantee scheme.
The Scandinavian countries are preparing their own bail-out packages, although they have said that bank recapitalisation will not be necessary there.
Norway, which is not an EU member state, announced a €41 billion package on Sunday, while Sweden plans to announce bank deposit guarantee legislation shortly. Denmark has guaranteed all bank deposits and loans between banks.
By the end of the day, the emergency manoeuvres seemed to be working, as European stock markets, which saw enormous declines last week, soared on Monday, while interbank lending rates eased significantly.