World Financial Crisis

How will Europe react?

Article published on the 2008-10-02 Latest update 2008-10-02 13:13 TU

Can the European financial sector survive the crisis?
(Photo: Reuters)

The approval by the US Senate of a bailout plan for the financial sector has drawn sighs of relief in Europe. But European leaders are at odds over a co-ordinated EU reaction to the financial crisis.

The chair of the Eurogroup of eurozone finance ministers, Jean-Claude Juncker, said on Thursday that he was “very relieved” that the Senate had adopted a 700 billion dollar bank bailout plan. He added that the US plan would “certainly help calm markets”.

 

But as Juncker tries to reassure eurozone citizens, EU countries are struggling to co-ordinate a response to the crisis.

 

French President Nicolas Sarkozy was forced to issue a denial on Thursday that he had proposed a 300-billion-euro bank rescue fund for European banks, after the idea was slammed by German authorities.

 

“Germany does not think much of such a plan,” said Finance Ministry spokesperson Torsten Albig.

 

With France holding the EU presidency for six months, Sarkozy has called for a summit of EU economic powers to discuss the crisis. He wants leaders of Britain, France, Germany and Italy to meet on Saturday in order to prepare a response. 

 

But German government spokesperson Thomas Steg said that Germany refused "to engage in speculation that European solutions or models would be discussed in whatever form".

 

UK authorities will not confirm whether British Prime Minister Gordon Brown will attend the meeting.

 

So far, European countries have chosen unilateral and bilateral responses to the crisis.

 

Ireland caused panic in the UK banking sector by announcing a four 400-billion-euro plan to guarantee deposits in all Irish banks. The move sparked fears in British banks that customers will take their savings across the Irish sea, and Irish banks in the UK were inundated with calls from clients anxious to move their savings from British institutions.

 

French Finance Minister Christine Lagarde also criticised the Irish government's move.

 

"A measure decided in one member-state has to be shared in advance with other member states," she said. "When something happens in one member state it affects everybody else around, so there needs to be that level of cross-sharing of information."