World financial crisis

EU struggles to unite to protect bank deposits

Article published on the 2008-10-07 Latest update 2008-10-07 16:17 TU

French Economy Minister Christine Lagarde at the meeting
(Photo: Reuters)

In an effort to unite against the global financial crisis, the European Union announced new measures on Tuesday. Ministers have agreed to more than double bank deposit guarantees to at least 50,000 euros. The deposit falls short of the minimum 100,000 euro level that was suggested by Spain and others. That was rejected amid concerns that eastern European countries would not be able to meet the obligation.

"We have agreed to assure the solidity and stability of our financial system and carry out any measure to reach that objective," said French Finance Minister Christine Lagarde.

This is the first joint effort by the EU to deal with the crisis. After the EU's four biggest economies failed to come to an agreement at an emergency meeting on Saturday, Germany offered its citizens a blanket guarantee on deposits. The move angered some countries because individual measures were not discussed in the Satuday meeting.

However, as Austria, Britain, Denmark, Portugual, Spain and Sweden said they had similar plans on the table.

Ireland also unilaterally decided to protect savers, but went one step further by providing blanket protection on all deposits at its biggest banks. This move irritated other EU countries as well, including Germany.

"The Irish way is not the right way. Protecting without coordination one's own banks, without including other international institutions that paid taxes in Ireland for years, and thereby of course hurting competition, is in my opinion unacceptable," Merkel said.

"We should co-ordinate these decisions to reinforce ourselves to avoid negative spillovers to deal with the financial markets, with financial institutions that are cross-border and that cannot be isolated," said EU Monetary Affairs Commissioner Joaquin Almunia, speaking in Luxembourg after the decision.

"The situation of financial markets requires an EU responsibility, and building on this responsibility, a global approach," he added.

French President Nicolas Sarkozy told his cabinet on Tuesday that France was ready to rescue banks from bankruptcy by acquiring some of their capital, according to government spokesperson Luc Chatel.

The EU package is somewhat limited in its scope, according to Waltraud Schekler, an economist at the London School of Economics.

"The problem is of course that there are very different interests," she said.

"Sarkozy doeesn't have any track record of being a good organiser or compromiser, being himself very watchful of his European obligation. I'd rather think that (Jean-Claude) Juncker, as president of the Euro Group, is an old hand in (understanding) European institutions, and can wield some leverage here," she added.