World financial crisis

France announces 360 billion euro bailout plan

Article published on the 2008-10-13 Latest update 2008-10-13 14:16 TU

Nicolas Sarkozy announcing the bank bailout
(Photo: Reuters)

French President Nicolas Sarkozy announced a massive bailout plan following a special ministerial meeting on Monday. The French proposal comes after leaders of the 15 eurozone countries met on Sunday and agreed to jointly bail out their banking sectors. Sarkozy announced 320 billion euros in interbank loan guarantees, and made 40 billion euros available to recapitalise banks.

“The State’s engagement is considerable,” he said, presenting a plan that he said is comparable to the ones already proposed by Germany and the UK.

“We must unblock credit markets,” he said. “This is why the state will bring its guarantee to loans that banks need to refinance themselves.”

The government will guarantee interbank loans made through the end of 2009, up to 320 billion euros for a period of five years. Germany pledged to guarantee loans up to 400 billion euros earlier on Monday.

Specifically, France will create a government-backed entity that will borrow money from the markets on behalf of banks.

“The loans for this entity will be guaranteed by the state,” said Sarkozy.

Since the entity will be guaranteed by the government, it should be able to borrow money as it will have the highest credit rating possible. The banks will become shareholders of this entity and will pay fees, as well as interest on the loans.

Sarkozy repeated that he will not allow any French bank to fail, pointing out France’s bailout of Dexia as an example.

He also insisted that taxpayers will come out ahead.

“This will not cost the taxpayers,” he said. “This is just a guarantee in the case of bank failures.”

The bailout plan will be presented to Parliament on Tuesday and the Senate on Wednesday, with the hope that it will be voted on and adopted by the end of the week.