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WORLD> Europe
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France, Germany clash over US-style rescue package
(Agencies)
Updated: 2008-10-03 09:23 France and Germany clashed over how to prevent a global credit crunch from sinking European banks, kicking off a version of the debate that has been raging in the US for two weeks. Germany, the biggest European economy, shot down a French proposal to set up a bailout fund, while Luxembourg Prime Minister Jean-Claude Juncker said he didn't "see the need" for an effort to emulate the $700 billion rescue package that senators passed late on Wednesday in Washington.
"The stiff opposition in several quarters suggests the plan is unlikely to happen," said Sunil Kapadia, an economist at UBS AG in London. The conflict undermined efforts to build a consensus European response to the financial crisis as a recession looms. Other fissures emerged, as Ireland's decision to guarantee bank deposits and debts prompted criticism by British bankers on Wednesday that it "distorted competition." Fallout from the crisis that drove Lehman Brothers Holdings Inc into bankruptcy hit Europe this week, with Germany, France, Belgium, Luxembourg, Iceland and the UK rescuing five lenders and Italian Prime Minister Silvio Berlusconi pledging to prevent losses for depositors. Dutch Prime Minister Jan Peter Balkenende, who meets French President Nicolas Sarkozy in Paris today, wants European governments to set aside 3 percent of gross national product to help troubled financial institutions, news agency ANP reported, citing unidentified people. Remco Dolstra, a spokesman for the Dutch Finance Ministry, wasn't immediately available to comment. In the US, Treasury Secretary Henry Paulson proposed a $700 billion bailout on Sept 20 that lawmakers are struggling to pass. The House of Representatives rejected a version of the plan three days ago. Senators who approved the package urged opponents in the House to drop their objections. A European version of the Paulson plan is a "non-starter" because of competing agendas and coordination difficulties, Klaus Baader, chief European economist at Merrill Lynch and Co. in London, said in a Sept 29 report. Still, he expects increased cooperation among governments confronting the crisis. The disagreements will be aired at an Oct 4 meeting called by Sarkozy in Paris with Juncker, leaders of Great Britain, Italy and Germany, as well as European Central Bank President Jean-Claude Trichet. French Finance Minister Christine Lagarde told the German newspaper Handelsblatt in an interview today that a "rescue package" was needed to help "smaller" European states "threatened with a banking failure." Germany opposes the proposal "based on its current assessment of risk," said Finance Ministry spokesman Stefan Olbermann. No need "We see no need for a fund," Olbermann said on Thursday. French officials rejected a Reuters report that the fund would total 300 billion euros ($420 billion) and backed away from suggestions that they supported a European solution. "Everyone is working very well together," Lagarde told reporters in Paris yesterday. Henri Guaino, a special adviser to Sarkozy, said in a telephone interview that "France has neither studied nor proposed a plan of that type to its partners." The specifics of a coordinated plan notwithstanding, Germany rejects a Europe-wide approach to bank rescues, said Torsten Albig, another finance ministry spokesman. "The idea of applying one solution, one big bang" should the banking crisis spread "is not practicable and would create new, enormous problems," he told reporters on Wednesday in Berlin. "The tailor-made solution is the right way." That contrasts with pleas from European Union officials for less unilateral action. Charlie McCreevy, EU financial-services commissioner, on Wednesday proposed more coordinated oversight and rules that banks hold additional capital for asset-backed bonds. Economy's lifeblood "Capital and strong financial institutions are the lifeblood of an economy," McCreevy said in a Bloomberg Television interview in Brussels. As banks hoarded cash, the Libor-OIS spread, a gauge of cash scarcity, widened for an eighth day. |
