Divided EU battles to keep banks afloat

PARIS

The financial storm that crossed the Atlantic into Europe is exposing limits of economic coordination within the 27-nation European Union that belie the bloc’s history.

From its beginning as a post-Word War II trading pact between a half-dozen nations to the introduction of the euro currency nearly a decade ago, the European Union’s strength lies in its economic integration and financial cooperation.

Instead, the weekend failure of the region’s four economic heavyweights - France, Germany, Italy and Britain - to follow the U.S. in crafting a unified financial bailout is raising alarm among officials and analysts, who worry that the European Union is also buffeted by Washington-style partisanship.

“We’ve seen partisan bickering in Washington, but we´ve also seen strong disagreements, public disagreements in Europe,” said Thomas Klau, director of the Paris office of the European Council on Foreign Relations.

“And at a time when the most important thing governments can do is to restore public confidence, these kinds of public bickering and clashes are very detrimental and undermine the rescue efforts that are going on,” he said.

Although the big-four EU nations vowed to work together to shore up the financial sector during a weekend summit in Paris, they failed to agree on a Dutch proposal for a common bailout plan for the European Union similar to the $700 billion package passed by Congress in the United States. That left governments on their own to prop up failing banks and brokerages as the week began.

In Berlin, the German government battled to contain a crisis sparked by the collapse of a $48.4 billion bailout of Hypo Real Estate AG, the country’s second-biggest property lender. Chancellor Angela Merkel announced an enhanced bailout package of $69 billion as the government also guaranteed all private bank accounts.

Mrs. Merkel said that Europe’s biggest economy would “not allow the distress of one financial institution to distress the entire system,” the Associated Press reported.

Luxembourg, Belgium and the Netherlands recently scrambled to prop up ailing Benelux banks Dexia and Fortis NV. Belgian Prime Minister Yves Leterme said Sunday that France’s BNP Paribas SA would take a 75 percent stake in Fortis, with Belgium and Luxembourg taking a blocking minority share in Paribas.

Ireland sparked European disgruntlement by acting unilaterally to guarantee its domestic bank deposits.

Still, Mr. Klau of the European Council on Foreign Relations and other commentators applauded the thinking behind Saturday’s summit and more ambitious goals by its host, French President Nicolas Sarkozy, for a larger European and world gathering at some unspecified date to address the financial crisis.

“[The] call for a global summit by EU leaders, who have been meeting in Paris is encouraging, suggesting a real effort by member states to overcome instinctive divisions over how to run an economy,” Britain’s Observer newspaper wrote in a Sunday editorial.

But pointing out deep and ingrained divisions in European economic thinking - notably between Britain’s market-oriented ethos and the more interventionist approach backed by France and Germany - the newspaper added: “It is testimony to an historic failure of political will that Europe’s leaders only began to negotiate past those ideological barriers when faced with a crisis of this magnitude.”

After a three-hour meeting in Paris on Saturday, European leaders agreed to work jointly to stem the financial panic in Europe, calling for tougher global financial coordination and governance, for backing up solid banks but punishing those deemed responsible for the crisis.

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