Eurozone members agree bank bail-out guidelines

Europe’s finance ministers from the twelve eurozone countries have agreed upon guidelines to help European banks, as more countries followed in the footsteps of Ireland and Germany by rushing to ailing financial institutions’ rescue.
The crisis is now inside mainland Europe, forcing governments to rush to salvage insurer Fortis, German lender Hypo, British lender Bradford & Bingley (B&B), Franco-Belgian bank Dexia and some of the main Irish banks.
Last week, the Irish government offered state guarantees to the financial sector in an operation which was valued at a potential €440 billion, over twice the country’s GDP. While the move was labelled unfair competition by EU Competition Commissioner Neelie Kroes, other countries, including Greece and Germany, have now followed suit in a scramble to save their financial sectors.
Only major European banks will be bailed-out, according to the guidelines agreed by eurozone ministers during a meeting in Luxembourg on 6 October.
The agreement came as several countries yesterday mirrored Germany’s decision to give state guarantees to all private saving accounts, ruling out a concerted Europe-wide solution for now.
Austria, Denmark, and Sweden followed Germany, while several other countries indicated that they had similar plans in the pipeline.
In the UK, the government raised the upper guarantee level for private savings to €64,000, a step that Prime Minister Gordon Brown said had become necessary because of “extraordinary times”.
Spain and Italy indicated they would follow suit, reversing their previous position that a European solution needed to be found.
José Manuel Barroso, the President of the European Commission, recognised that national situations varied and that it was too early for a harmonised European approach. “We are a Union of states, not one single state,” Barroso said.
“Therefore each and everybody has to act at his or her level, with his or her instruments. I recognise that the cases may vary and that there are different national contexts. As a consequence, there cannot be uniform responses.”
A European bail-out fund, proposed last week by the Danish and French governments, seems to be off the cards, although Italy is expected to raise the idea again when the non-Euro group members meet their EU colleagues today.
“All European leaders will take every necessary step to maintain the stability of the financial system, through liquidity injections, specific actions on individual banks, or reinforcing the protection scheme for depositors,” Berlusconi said ahead of a meeting with Germany’s Chancellor Angela Merkel.
Meanwhile, European stocks along with the euro continued their downturn, with the German stock exchange suffering a 7% blow and the European currency reaching a 14-month low to the dollar.
Ministers also debated measures against tax fraud and reduced VAT rates for labour-intensive services, such as catering. The French EU Presidency considers the latter key to boosting the competitiveness of small businesses, but countries such as Germany remain opposed to the measure, questioning its positive effect.

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