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France leads giant Euro bail out |
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Monday, 13 October 2008 |
Led by Nicolas Sarkozy Europe showed it was serious in dealing with the banking crisis. Germany, France, Italy, Spain, Holland and Austria launched the biggest bank bail-out in history, offering over €1.5 trillion in guarantees and fresh capital in a huge effort to halt the credit panic.
The move was coordinated at a summit of Euro zone countries plus Britain, although countries adopted varying measures to deal with the situation depending on their individual circumstances. In reaction to the disastrous bankruptcy of Lehman Brothers that triggered the recent stock market collapse, it was agreed that in future no major European bank will be allowed to fail. Inter bank lending is now guaranteed by governments. The size of the bailouts in different countries reflected the degree of contamination by now virtually worthless derivative bonds. Germany made available a huge 500 billion euros, which per head is a far greater amount than the 700 billion dollars proposed in the United States but it is already clear that the US figure is only the beginning. Recent events have shattered the financial markets. “It's way off the scale, a one-in-billions chance,'' said Nigel Marriott, the founder of Bath, England-based Marriott Statistical Consulting Ltd, a fellow of the Royal Statistical Society. ``This is absolutely a black swan event.'' In the face of this, Europe seems to have adopted measures that are in proportion to the huge figures that are suspect in the balance sheets of the banks. The big stock market rallies in London Paris Berlin and worldwide indicate that investors have understood this.
Tributes were being paid to Christine Lagarde who knows the US Secretary of the Treasury well and seems to have bridged the gap between Europe and America although she has not hesitated to criticize the decision to allow Lehman Brothers to fail. Before joining the French government she was one of the top commercial lawyers in the world. A measure of the French contribution is the general acceptance that the role of Sarkozy has been crucial. Even Britain’s Daily Telegraph, not known for its admiration for things French, generously ended its leading article “IMF chair Dominique Strauss-Kahn said the monetary union had faced its "ordeal by fire" this week. With French leadership, it survived.”
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