E.U. Summit Seeks United Response To Financial Crisis

15 October 2008

European Union- European Union (E.U.) leaders will try to formulate a common response to the financial crisis that emanated in the United States, when they meet for a crunch autumn summit in Brussels Wednesday and Thursday.

On the eve of the summit, European Commission President Jose Manuel Barroso renewed his call on the 27 E.U. member-states to rally round plans thrashed out Sunday in Paris among Eurozone countries in tackling the financial crisis and revive the flagging confidence in shell-shocked banks.

"To try and go it alone in this climate would be a fatal mistake for any government anywhere in Europe. This is an unprecedented crisis... this is something that requires unprecedented E.U. action," Barroso said Tuesday.

In emergency talks in Paris, leaders from the 15 Eurozone countries sharing the euro, plus Britain, agreed to prop up the hardest-hit banks through cash injections and underwriting loans between financial players.

It was also agreed that national governments would buy into banks to boost their finances and temporarily guarantee bank-refinancing to ease the credit crunch.

They also agreed on banking guarantees lasting until December next year, along with inter-bank loans. The Eurozone countries were also willing to underwrite new loans of up to five years as well as guarantee more than €50,000 of their citizens' bank deposits and to bail out financial institutions by providing them with cash in exchange for a share in such companies.

Stock markets in Europe responded positively to the measures during the first two days of this week with a massive rally, from the beaten-down levels reached last week during one of the worst routs in years.

Determined to contain the crisis, governments across Europe earlier pledged about €2.0 trillion ($2.7 trillion) to bring banks back from the brink of collapse, and to reassure people, they have raised the ceiling on deposits they are willing to guarantee. Britain also joined the move by injecting billions of pounds-sterling into the country's three major banks.

Despite these efforts, the European markets saw some of the most turbulent days in their history last week.

Until the Paris talks, E.U. member-states acted independently in response to the crisis, creating the impression of disorder, and sending confusing signals to financial markets. Despite the injection of billions of euros into the financial system by the European Central Bank, their piecemeal and ad hoc nature weakened the impact.

Calls for Europe-wide action in tackling the financial crisis strengthened after the continent's major markets experienced their worst turbulent days last week, with FTSEuro first 300 index of top European shares down 22 percent for the whole week.

"I am glad that there is now a consensus on the necessity and on the substance of a coherent effort," Barroso said of the plan involving an estimated €2 trillion ($2.7 trillion). "I expect confirmation and strengthening of this coherent effort by the European Council," he added, referring to the summit of E.U. leaders.

However, East European countries, which have not been badly hit by the financial crisis, simply see no need to undergo these economic hardships and worry about being disadvantaged.

Meanwhile, in addition to the financial crisis, E.U. leaders also need to reach a consensus in their fight against climate-change. Barroso urged E.U. member-states Tuesday not to use the financial crisis as an excuse to water down the plan.

E.U. leaders agreed last year to reduce greenhouse gas emissions by 20 percent in 2020 from the 1990 level, increase the use of renewable energy to 20 percent of the total, and to cut energy consumption by 20 percent.