Paris, 13/10/2008 (Agence Europe) - At the end of another special summit in Paris on Sunday 12 October, heads of state and government from the eurozone fine-tuned their collective response to the financial crisis. By adopting an EU16-wide coordinated action plan, they reaffirmed their determination to support the banking system and unblock the monetary market, paralysed by the reluctance of commercial banks to lend money. Linked to different weekend announcements (at the G7, G20, the International Monetary Fund and World Bank), this collective taking-into-hand of the problem was given a favourable reception on European stock exchanges, which after last week's uninterrupted collapse, managed to bounce back on Monday.
In the wake of the Ecofin Council's conclusions (EUROPE 9756), this common action framework constitutes a genuine “tool box”. Inspired by the British rescue plan, which Gordon Brown described as exemplary, the plan includes inter-banking guarantees through the setting up of a specific mechanism. The initial declaration from eurozone members (EUROPE Documents 2505) explained: “We are committed in every possible way to support the big financial institutions and prevent them going bankrupt”. This 14 point declaration includes the guiding principles for government intervention through a relatively precise range of national measures aimed at: ensuring sufficient liquidity for financial institutions; facilitating the financing of banks (currently subject to limitations); providing the financial institutions with capital resources so that they can appropriately finance the economy; providing a sufficient recapitalisation of banks in difficulty; ensuring enough flexibility in the implementation of accounting rules in the current exceptional circumstances and enhancing cooperation procedures between European countries.
During the press conference, Nicolas Sarkozy said that it was necessary to implement “concrete measures” to get the world economy out of the crisis that has been shaking it up for the past several weeks. Mr Sarkozy presented the EU16 plan, which is likely to be set out in each of the eurozone member states, and explained that “these measures will be immediatley implemented”. On Monday 13 October, the French, Italian and German governments presented their own national action plans, which were inspired by the principles identified the day before (see other article).
“Flexibility”. The document adopted on Sunday also highlights the notion of flexibility. European Commission “flexibility” involves its decisions on state aid and the “flexibility” of the European Central Bank (ECB) and the euro system in their responses to developments on the markets. The text explains that “initiatives will be devised to rectify the liquidity problems of solvent banks”. Governments may also “directly or indirectly” provide a “guarantee, insurance or any other similar mechanism, in compliance with certain conditions, to new rights issues from banks, for periods up to five years”. The final declaration explains that this mechanism will have a threshold, it will be temporary and will involve, under the auspices of the financial authorities, rights issues made before 31 December 2009. Finally, the document urges “reassurances to provide enough flexibility in the implementation of accounting rules in the current circumstances”. The document explains that “financial and non-financial institutions should be allowed as necessary to value their assets consistently with risk of default assumptions rather than immediate market value which, in illiquid markets may no longer be appropriate”
Mr Sarkozy told the press that “European accounting standards create a handicap for our banks, compared to their US counterparts”. He added: “We will be studying a proposal next Wednesday at the European Council, to create a crisis mechanism structured around the president of the European Union, the president of the Eurogroup, the president of the Commission and the president of the ECB so that there is an operational cell to tackle the crisis”.
Some of the points added to the final version but not figuring in the previous version, include a measure urging the member states in the eurozone to avoid taking national measures that “hurt other member states”. This clarification echoes the declaration made by Angela Merkel when she arrived at the Elysée. During a brief speech, the German Chancellor stressed that the “small” countries should not be left on the sidelines.
“Tool box”. The president of the European Commission, José Manuel Barroso, said that initiatives taken by the eurozone should be reinforced together. He noted that the “key to success is to devise specific solutions for each specific situation” in a common framework. “The Commission will propose, before the European Council (Ed: on Wednesday), the legislative proposal to set up a European framework for protecting deposits”. He added that the European Commission had launched the procedure to amend accounting rules but was not expecting an immediate miracle solution.
Jean-Claude Trichet, President of the European Central Bank (ECB), said he was impressed with the scale of the decisions taken at the summit and by Member States' unity. He said he had told President Sarkozy that the ECB could not go much further and governments certainly had a role to play in the current period. He congratulated Jean-Claude Juncker, the President of Eurogroup on the strength of unity that had been evident at the meeting, adding that this unity was vital for confidence.
The President of Eurogroup also welcomed the adoption of several instruments forming a full package, describing it as a tool box for the Member States. He asked people to imagine the situation if the meeting had taken place where there were still 15 or 16 different national currencies, which would have led to the total collapse of the European system.
European Regulator. In a previous version of the conclusions document the option was mentioned of the ECB granting loans to 'non-financial establishments'. After the meeting, Jean-Claude Juncker explained that this would not be legally possible for the ECB. Before the other heads of state arrived, the UK prime minister, Gordon Brown, had a meeting alone at the Elysee Palace with Messrs Sarkozy, Trichet and Barroso. Brown then joined the Eurogroup meeting for nearly an hour. Sarkozy explained later that there had not been any problem in striking agreement with Gordon Brown. On leaving the meeting, Belgian prime minister Yves Leterme said he was disappointed that the idea of a European Regulator had not been included in the action plan. At a press conference, Sarkozy said that the Belgian prime minister's disappointment would be short-lived and as far as Sarkozy was concerned, it was more logical to take a decision with all Europeans on the question of a European Regulator rather than with only some Europeans. The question of a European Regulator will be discussed at the European Council on Wednesday and Thursday. The ECOFIN Council has been instructed to report to the European Council in a timely fashion.
President Sarkozy set out a roadmap for the weeks to come. He said that that very evening, they had agreed on the eurozone and on Wednesday would agree on the whole of Europe, after which they would convince their US allies of the need for an international summit to redesign the financial system. (L.B.S. transl rh)