Euro bloc plans to guarantee new bank debt

By Greg Keller
Associated Press
Sunday, October 12, 2008

http://news.yahoo.com/s/ap/20081012/ap_on_bi_ge/eu_europe_crisis_summit;...

PARIS -- Countries that use the euro will temporarily guarantee future bank debt to encourage lending and ease the credit crunch, according to a draft statement under discussion by European leaders Sunday.

The declaration says the governments would guarantee "for an interim period and on appropriate commercial terms" new debt issued by banks for up to five years.

"This scheme would be limited in amount, temporary, and will be applied under close scrutiny of financial authorities until Dec. 31, 2009," it says.

The leaders of the 15 euro-zone nations held an emergency summit Sunday night in Paris to seek European solutions to the financial crisis engulfing markets worldwide. The meltdown dominated summits around the world this weekend.

The statement also says that one way governments could save banks would include buying big stakes.

Whatever is decided Sunday will then be proposed to the full 27-member European Union at a summit later this week.

British Prime Minister Gordon Brown, who met with France's President Nicolas Sarkozy before the euro summit, said the plan "would involve not only more cash in the financial market but also a recapitalization of our banking system.

"And allied to that -- something that I believe is absolutely crucial -- to begin again the funding of businesses and mortgages with a guarantee given by governments. That can happen and will happen in the next few months," he told reporters.

"This is an important moment of the world economy. The eyes of the world are now looking to governments to help restore confidence in the financial market. Decisions that we make in the next few days are decisions that will effect us for many years ahead," he said.

Earlier summit host Sarkozy said, "I expect an ambitious, coordinated plan that brings solutions."

German Chancellor Angela Merkel said she hopes leaders can provide a "very important signal for the markets."

"Our goal is to define a coordinated joint action for the euro zone, so that we can in the coming days take national measures that stabilize the financial markets, but that also don't discredit the individual member states," she said.

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