Europe throws cash at nervous markets

LEIGH PHILLIPS

17.09.2008 @ 10:15 CET

For the second day in a row, the European Central Bank (ECB) flooded the financial system with cash in an attempt to stabilise markets and restore confidence in Europe's financial institutions.

Meanwhile, finance ministers across the EU attempted to persuade both markets and ordinary people that European banks were not in any danger.

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On Tuesday (16 September), the ECB offered money markets €70 billion in a one-day tender following similar action on Monday, when the Frankfurt-based institution lent €30 billion to boost liquidity.

ECB president Jean-Claude Trichet said the crisis "is an ongoing process and we have to remain extraordinarily alert."

In the UK, the Bank of England moved to shore up its financial sector, providing an additional £20 billion (€25.2 billion) in a two-day tender to lenders on top of the £5 billion allocated on Monday.

The Swiss National Bank also manned the pumps, offering 8 billion francs in a one-day tender. The US Federal Reserve and Bank of Japan have also made billions of dollars available to head off a worldwide financial collapse.

However bids for the cash in Europe quickly exceeded what had been offered, suggesting credit remains tight.

European stock markets also plunged sharply, with London declining 3.34 percent in afternoon trading. Frankfurt and Paris dropped more than three percent. Russian share prices fell to their lowest levels since 2005, with both of Russia's main exchanges suspending trading for an hour.

European banks not in danger

Europe's finance ministers are trying to put a brave face on the crisis.

The chair of the Eurogroup of member states - those employing the euro as their currency - Jean-Claude Juncker said on Wednesday morning: "The financial crisis that is still raging, that has not yet reached even a temporary end is causing us the biggest headache."

"[But] I don't see Europe being affected by the financial crisis to the same extent as seems to be the case in the United States," he added, according to Reuters, quoting German Radio.

"The financial-market crisis is very grave, very far-reaching and is of course affecting Germany, too." But "any consequences ... will remain small," Germany's finance minister, Peer Steinbruck, told parliament on Tuesday, the FT reports.

The UK's finance minister, Alastair Darling, was equally reassuring: "This is clearly a difficult time but I'm confident we'll get through it."

France's finance minister Christine Lagarde said that French banks were lightly affected by the credit crunch. "They have a direct 'Lehman at-risk' exposure that is weak when compared to that of other countries."

Austria's central bank chief, Ewald Nowotny, speaking to national radio also attempted to reassure markets that his country's banks were in sound standing and that his compatriots need not worry about their savings.

But in Belgium, Fortis bank lost 20 percent of its value in the past 48 hours due to nervous share speculation.

'Capitalism's Chernobyl'

Euro-deputies also weighed in on the crisis, with British Green MEP Caroline Lucas telling the UK's Guardian daily "This is a defining moment; the end of the kind of unbridled, deregulated capitalism of the past few decades."

"We are going to have to return finance to its role as servant rather than master of the global economy."

Her colleague, Franco-German MEP Daniel Cohn-Bendit told the same newspaper: "This financial crisis is for capitalist neo-liberals what Chernobyl was for the nuclear lobby."