European leaders act as markets prepare to reopen

UPDATED:

Leaders of 15 European countries on Sunday announced a joint plan to put new money into their banks and guarantee their lending in the face of a global credit crunch, as international policymakers nervously awaited the reopening of battered world stock markets on Monday.

In Washington, Treasury Secretary Henry M. Paulson Jr. urged developing nations not to be tempted by “isolationism and protectionism,” while top Democratic lawmakers said they were preparing a major new stimulus spending package for the reeling U.S. economy.

Related article:Paulson: Protectionist policies won’t solve crisis

At a summit in Paris, the European leaders said they had reached a deal of a specific series of measures to aid their banks, including a guarantee of interbank loans through 2009 that Mr. Paulson has opposed for U.S. lenders. The collapse of such lending has frozen credit markets generally and bankrupted some major international banks and investment houses.

“The crisis over the past days had entered into a phase that makes it intolerable to opt for procrastination and a go-it-alone approach,” said French President Nicolas Sarkozy, who hosted the summit. The failure of previous attempts to coordinate policies in Europe drove down stock markets across the Continent in recent days.

Key details of the accord — including the price tag — were not detailed in the leaders’ statement.

Related article:Draft statement: Europe would guarantee bank debt

Market analysts said a summit of G-7 finance ministers hosted by Mr. Paulson on Friday had offered few concrete proposals to reassure nervous investors. The gathering was held on the sidelines of the annual meetings of the World Bank and International Monetary Fund (IMF), which continue this week. Mr. Paulson on Sunday warned nations against trying to shut up their borders in the face the mounting economic bad news.

“Isolationism and protectionism will not offer a way out,” he said. “Although we in the United States are taking many extraordinary measures to ease the crisis, we are not pursuing policies that would limit the flows of goods, service or capital.”

Democratic lawmakers used Sunday’s talk shows to urge the Treasury Department to move quickly under the just-passed $700 billion Wall Street rescue plan to make direct purchases of bank stocks and provide banks fresh capital to make new loans. They also made clear they will push ahead with a planned stimulus package in a lame-duck session tentatively planned for mid-November.

“We are going to do a stimulus,” House Financial Services Chairman Rep. Barney Frank, Massachusetts Democrat, told ABC’s “This Week.” “I think the stimulus package is to give the middle class and the average citizen the same kind of relief that we tried to give to the financial sector.”

House Speaker Nancy Pelosi and the Democratic leadership in Congress are reportedly eyeing a $150 billion package, designed to give the economy a boost in the face of job layoffs and plunging stock values.

House Minority Whip Rep. Roy Blunt, Missouri Republican, said he was open to a stimulus program “that made sense.”

“But let’s not use the stimulus package as an excuse to do what Democrats have wanted to do from Day One of this Congress, which is a huge public works plan,” he added.

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