Europe agrees to secure banks

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Leaders of 15 European countries announced a joint plan Sunday 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 reopenings of battered world stock markets on Monday.

The first news on Monday was encouraging. South Korean shares opened 2.5 percent up, and Australian shares jumped 5.7 percent. Singapore shares were 1.75 percent higher in early trading. New Zealand’s NZX 50 index was up 1.15 percent. Japan’s markets were closed for a holiday 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.

Top World Bank officials, holding their annual meeting in Washington, said after a daylong meeting Sunday that they were committed to helping the world’s poorest countries get through the crisis.

World Bank President Robert B. Zoellick warned that a lengthy credit crisis would hit developing countries particularly hard, especially those already facing higher food and fuel costs. Both the World Bank and the International Monetary Fund (IMF), also meeting in Washington, have roles, Mr. Zoellick said.

“Aid flows must be maintained,” he told reporters. “Today’s meeting of ministers was unanimous in that regard.”

At Sunday’s summit in Paris, the European leaders said they had agreed to a specific series of measures to aid their banks, including a guarantee of interbank loans through 2009, an action 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, host of the summit of leaders from the 15 nations that use the euro currency.

The leaders’ statement did not reveal key details of the accord, including the price tag.

British Prime Minister Gordon Brown, who attended the talks but did not sign on to the final plan, announced a similar $85 billion program to recapitalize and partially nationalize British banks last week. Britain maintains its own currency outside the euro system.

“This is a step in the right direction, and the good news is all the governments are on board,” Carl Weinberg, chief economist at High Frequency Economics in Valhalla, N.Y., told Bloomberg News.

Market analysts said a summit of the Group of Seven finance ministers on Friday offered few concrete proposals to reassure nervous investors. Mr. Paulson hosted the gathering on the sidelines of the World Bank and IMF annual meetings.

In just one more sign of how the crisis is reshaping the financial landscape, the Federal Reserve on Sunday approved the takeover of giant North Carolina bank Wachovia Corp. by Wells Fargo & Co. of San Francisco. Wells Fargo won a bidding war with Citigroup after Wachovia’s shaky balance sheet forced it onto the auction block.

Art Cashin, director of floor trading for Swiss financial giant UBS, said on ABC’s “This Week” that Western governments will be under intense pressure to offer more than rhetoric after a series of moves that have failed to slow the downturn.

“I think it would be a major problem if they didn’t come out with some apparent coordinated plan,” Mr. Cashin said. “That’s been the problem in this crisis all the way through.”

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About the Author
David R. Sands

David R. Sands

Raised in Northern Virginia, David R. Sands received an undergraduate degree from the University of Virginia and a master’s degree from the Fletcher School of Law and Diplomacy at Tufts University. He worked as a reporter for several Washington-area business publications before joining The Washington Times.

At The Times, Mr. Sands has covered numerous beats, including international trade, banking, politics ...

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