European financial answer sought

October 4, 2008
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, PARIS, October 4 – European leaders were set to try to cobble together a response to the global financial crisis at a mini-summit on Saturday despite disagreements that killed off talk of a Europe-wide bailout package.

French President Nicolas Sarkozy spent Friday laying the groundwork for the Paris meeting with leaders of Britain, Italy and Germany.

European leaders are hoping to forge a common position on how to tackle the financial storm sparked by the US banking crisis ahead of the Group of Eight meeting of finance ministers in Washington next week.

But summit preparations exposed sharp divisions when Germany flatly rejected an idea floated by France for a 300-billion-euro (416-billion-dollar) European fund to shore up troubled banks.

Both Germany and Britain have been reluctant to commit their taxpayers\’ money to a Europe-managed fund and instead advocate a case-by-case approach to rescuing financial institutions.

German Chancellor Angela Merkel and British Prime Minister Gordon Brown only confirmed they would attend after France made clear it would not push for a fund mirroring the 700-billion-dollar US bailout plan.

The Paris mini-summit will be held against the backdrop of mounting economic gloom in Europe, with France now the second country after Ireland to slide into recession.

France sees the crisis as an opportunity to push for more state regulation of the economy to replace the laissez-faire approach widely blamed for the financial storm.

Sarkozy was due to host talks just ahead of Saturday\’s summit with International Monetary Fund Chief Dominique Strauss-Kahn, who has also argued the IMF needs to tighten its control over financial markets.

With the rescue fund off the table, leaders of Europe\’s biggest economies were expected to stress the need for coordinated action, in particular after Ireland guaranteed deposits in its six major banks, a French diplomat said.

The Irish action drew criticism from Britain, which raised fears of capital flight from its banks to the better-protected Irish accounts.

France\’s minister for European affairs Jean-Pierre Jouyet said European states needed to agree on "intervening where and when it is necessary to prevent any systemic risk. All European banks are related."

Listing areas of joint action, Jouyet told financial daily Les Echos that European governments must look at bank liquidity, credit lines and the system of asset-backed securities.

He said they must revisit accounting rules including the mark-to-market procedure, by which banks declare assets based on current market value and which has been criticised for leaving them exposed to stock market variations.

The French president, whose country holds the rotating presidency of the European Union, is keen to show he has spared no effort to contain the fallout from what he has called the worst financial crisis since the Great Depression.

The president wrote Friday to European Commission head Jose Manuel Barroso, who was to attend Saturday\’s mini-summit, stressing the need for an "intense effort of coordination and convergence" between EU states.

He said it was essential the next EU summit on October 15-16 should deliver "concrete measures liable to help restore confidence," and forge an agreement on ways to rekindle growth, rein in inflation and prevent credit drying up for families and businesses.

Sarkozy is also calling for a summit in November of the Group of Eight industrialised nations, Britain, Canada, France, Italy, Japan, Germany, Russia and the United States, along with emerging powers China, India and Brazil.

For French newspaper LeMonde the objective of "the essential goal of the summit of the four European G8 members Saturday at the Elysee is clear: putting an end to the European cacophony which characterised the reaction of the Union to the financial crisis this week."

It warned: "Nice speeches can\’t replace regular consultations and a willingness to agree that overcomes short-term interests."

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