World financial crisis

More government intervention with US Citigroup bailout and UK stimulus package

Article published on the 2008-11-24 Latest update 2008-11-24 12:53 TU

A Citibank sign in Singapore
(Photo: Reuters)

In the latest move to prop up its struggling banking sector, the United States pledged 20 billion dollars to Citigroup. The Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) announced the decision right before midnight on Sunday, saying they would protect the bank against “unusually large losses”.

The 20 billion dollars are to come out of the financial rescue package approved by Congress in October.

"The US government is taking the actions necessary to strengthen the financial system and protect US taxpayers and the US economy," said a joint statement.

President-elect Barack Obama is planning a vast economic stimulus package that involves tax cuts and public works projects that could total up to 700 billion dollars over the next two years.

The British government is expected to raise taxes on the rich to pay for tax cuts in a stimulus package it is set to unveil Monday afternoon.

The top rate of income tax is currently 40 per cent. Robin Shepherd, an economist with the Royal Institute of International Affairs in London, told RFI that there is a possibility of “a 45 per cent new tax rate band [that] will be imposed for those people earning more than 150,000 pounds a year, which is not very many people in proportion to the population.”

Reports suggest that Finance Minister Alistair Darling will cut the value-added tax (VAT).

“The government is desperate to raise its own popularity and lowering prices by cutting VAT is a good way to do that,” said Shepherd.

“Simultaneously there’s a lot of concerned and anger at the way people in the City have been seen to have ruined the British economy while making large amounts of money, and therefore that explains some of the tax rises.”

The European Commission is set to present an economic stimulus programme Wednesday.

German Chancellor Angela Merkel, after meeting with French President Nicolas Sarkozy in Paris, cautioned against a quick fix for Europe’s economic woes, warning not to “mistake haste for action”.

Berlin says the package will be worth 130 billion euros, with each country contributing around one percent of its gross domestic product.