21st Jan 2021

EU big four gather for financial crisis talks

  • Nicolas Sarkozy has invited his counterparts from Britain, Germany and Italy for talks about the deepening financial crisis (Photo: The Council of the European Union)

The leaders of the EU's four biggest states - Germany, France, Britain and Italy - are gathering for emergency talks on the financial crisis in Paris on Saturday (4 October), one day after US lawmakers are expected to vote for the second time on an amended bail-out plan for the country's financial sector.

European Commission president Jose Manuel Barroso on Thursday welcomed the approval of the package by the American Senate, which had enabled another attempt to hammer out the bill in the House of Representatives and described it as "a good step forward in the right direction."

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But after receiving negative signals from both Berlin and London on the idea of a similar emergency fund worth €300 billion for Europe's banking sector, French president Nicolas Sarkozy distanced himself from the proposal.

"I deny the sum and the principle," he said, according to media reports. An official in French finance minister Christine Lagarde's office added that "there was an exchange of ideas but no French proposals. There was no French plan," AFP says.

Asked by journalists about a possible EU version of the US banking rescue scheme on Thursday, the European Central Bank (ECB) president Jean-Claude Trichet - also to attend the Paris mini-summit together with commission chief Barroso - openly said it would not work for Europe.

"We do not have a federal budget, so the idea that we could do the same as what is done on the other side of the Atlantic doesn't fit with the political structure of Europe."

After Paris seemingly took the bail-out plan off the table, the question remains what kind of a co-ordinated strategy - if any - the four large EU countries could come up with at their emergency session over the weekend.

Britain has suggested that solutions to the financial crisis need to be primarily sought by national authorities. "It is right that individual countries would want to take their own decisions, particularly when national taxpayers' money is potentially at risk," said spokesman of Gordon Brown, UK's prime minister.

"The purpose of the [Paris] meeting will be to discuss how each of the four major economies in Europe are responding to the global financial crisis," he added, according to the BBC.

Irish rescue plan sparks controversy

But French finance minister Christine Lagarde insisted that there is a need for a joint strategy among the EU's member states, referring to the latest developments in the banking sector and how they affect neighbouring countries, such as Britain and Ireland.

The Irish parliament on Thursday passed a bill fully guaranteeing all bank deposits, which has sparked a controversy in other European capitals about unfair advantage for Irish banks over foreign competitors.

British media reported a rising interest among Brits to switch from the UK's to Ireland's banks in a bid to secure their savings in a rising atmosphere of insecurity.

Minister Lagarde said in a BBC live interview that better European co-ordination could prevent such cases, arguing that "a measure decided in one [EU] member state has to be shared in advance with other member states."

"When something happens in one member state it affects everybody else around, so there needs to be that level of cross-sharing of information," she added.

ECB mulls rate cuts

Meanwhile, the ECB on Thursday agreed to keep the interest rates in the 15-strong monetary union at a seven-year high of 4.25 percent, while hinting at possible cuts in the future.

"We had examined two options, one letting interest rates unchanged and one decreasing interest rates," said Mr Trichet. However, ultimately the bank left rates alone, in a unanimous decision that had been expected.

The ECB has far from abandoned inflation fears, as the eurozone inflation rate of 3.6 percent is still sharply higher than the bank's target range of a rate below but close to two percent.

"The economic outlook is subject to increasing downside risks,'' as a result of the "ongoing financial-market tensions," Mr Trichet told reporters.

The ECB chief said that this meant that while "upside risks to price stability have diminished somewhat, they have not disappeared."

Analysts interpret the statement as meaning the Frankfurt-based bank is now clearly considering when would be the best time to cut the cost of borrowing money.

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