Global General

Special

Newsmaker

Asia Pacific

America

Middle East

Europe

Africa

EU split on how to tackle financial crisis

(Xinhua)
Updated: 2008-10-07 08:59

BRUSSELS -- Despite a pledge by the leaders of the European Union (EU)'s big four -- France, Germany, Britain and Italy -- to coordinate in tackling the current financial crisis, divisions in Europe in the face of the difficulty remained obvious.

French President Nicholas Sarkozy, speaking at a joint news conference after a summit of the four nations in Paris Saturday, said the leaders agreed that "each government will operate with its own methods and means, but in a coordinated manner."

European Central Bank President Jean-Claude Trichet, left, talks with EU Commissioner for Economic and Monetary Affairs Joaquin Almunia, at the start of the Eurogroup meeting in Luxembourg, Monday, Oct. 6, 2008. EU finance ministers are beginning two days of talks to plot a strategy to contain the turmoil sweeping European banks and to debate ways to increase oversight of the financial sector. [Agencies]

The past week has seen several European banks falling prey to the crisis triggered by a credit crunch in the United States, prompting European governments to save their banks by injecting large amount of money or even nationalizing them.

However, such rescue actions were more often than not moves on national level or by several EU member states on an ad hoc basis without EU-wide coordination and concerted efforts by the whole Europe.

Under such circumstances, the summit, called by Sarkozy, was intended to iron out the differences and hammer out a common response to the crisis.

Sarkozy had been reportedly in favor of an EU-wide bailout fund modeled after the US 700-billion-dollar rescue package. But the idea was immediately rejected by Germany and Britain, who insisted that the principal responsibility lay on each country itself.

With the objection, Sarkozy had no way out but to openly deny any such project was ever on the table.

But the spirit of coordination was never to be denied after the summit. During their meeting, the leaders made it clear that EU governments should work in a coordinated manner and take into consideration the potential undesirable cross-border effects of their national decisions when tackling the financial crisis, in an apparent reference to Ireland's recent decision to guarantee all the savings at Irish-owned banks.

The unilateral move by the Irish government angered other EU countries, notably Britain, which is worried about a flurry of savings withdrawals from their own banks to Irish peers.

However, one day after German Chancellor Angela Merkel's criticism of the Irish move, the German government on Sunday announced an all-savings guarantee worth over 500 billion euros to calm depositors, after the failure of the government's plan to rescue the country's second largest financing mortgage loan bank for real estate.

But what the EU has done for coordination was far from enough, let alone its joint efforts in rescuing the market. And analysts attributed the EU's failure to act as one to the political structure of the 27-nation bloc.

Last week, 10 famous European economists warned that although current national-level rescues have taken effect, the high interdependence among European banks calls for EU-wide coordination and a systematic response.

Angel Gurria, secretary general of the Paris-based Organization for Economic Cooperation and Development also urged EU member states to work together to rescue the market.

Gurria said that in light of the European economy's high dependence on the financing function of the banking system, Europe might take an even severer blow than the United States if it doesn't act rapidly to help banks get rid of bad loans and ease the credit crunch.