World financial crisis

Unity at Eurozone meeting in Paris?

Article published on the 2008-10-12 Latest update 2008-10-12 15:51 TU

French President Nicolas Sarkozy (r) with German Chancellor Angela Merkel on Saturday
(Photo: Reuters)

Leaders from the 15 countries that use the euro, plus Britain, are meeting in Paris Sunday afternoon to try to agree on a European response to failing banks and to unblock credit markets. Coordinating the response to the banking crisis is seen as crucial to keeping one country’s actions from harming another and causing more problems.

French Finance Minister Christine Lagarde promised that the world would "not be disappointed" by the measures to be adopted in Sunday’s meeting.

She said that leaders would discuss the possibility of guaranteeing interbank lending, something that Britain did on Wednesday by earmarking 250 billion pounds (317 billion euros) for the Bank of England. This measure would reassure banks and allow them to start loaning money, which would jump-start credit markets

There will be "without doubt a debate" on the issue, said Lagarde.

That debate will undoubtedly come from Germany, the Eurozone country with the biggest financial reserves, but also the most reticence to a unified European solution to the financial crisis.

However, reports in the German media indicate that Germany may be changing its mind on this.

"In this it is important that countries do not act unilaterally but that we coordinate at European and international level and then implement the measures within our national responsibilities," said Angela Merkel to the Bild am Sonntag weekly magazine.

She said that that only the state could restore trust in the financial market.

Alexander Law, chief economist at Xerfi, an independent think tank in Paris, says the stakes are high for Sunday's meeting.

“We’ve got to save the banking system,” he told RFI. “What we need to come out of this meeting is for all the main leaders of the European economies is to say ‘right, this is a very, very deep crisis, we’re aware of it. But no bank is going to fail. No company is going to fail because there was a banking failure.”

“They’re going to stop the dominoes from toppling one another,” he continued. “Really that’s what’s necessary, and that’s what we’re hoping for.”

Max Keiser, a Paris-based financial analyst, is not hopeful that anything will come out of the meeting.

“This weekend unfortunately won’t produce the policies that are needed to rectify the situation,” he told RFI.

“They can make lending available, but if nobody wants to borrow, they can’t force people to borrow money. The economies are in massive contraction and people are retreating. And just by making these loans available, doesn’t mean that people want to borrow money. It’s just too much too late.”

Elsewhere in the world, Australia and the United Arab, guaranteed bank deposits, becoming the latest countries to take such measures. And Japan and South Korea agreed move forward on a foreign exchange pool to be used in the event of an Asian financial crisis.