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Europeans scramble, alone and together, to stem spreading crisis

The U.S. financial rescue had hardly been approved before a new wave of doubts set in — doubts that the actions taken will work. Today, multiple emergency actions are taking place in Europe after the expected ripples from Wall Street intensified on Monday.

“The global financial crisis has taken a perilous turn: As government efforts to tame it grow more aggressive, markets are becoming less confident those efforts will succeed,” the Wall Street Journal reported.

“On Monday, the Federal Reserve and European governments stepped up relief efforts, above and beyond the $700 billion rescue package approved by the Congress last week,” the Journal said. “But markets around the world responded with a massive vote of no confidence.”

The Los Angeles Times reported, “International stock markets hemorrhaged hundreds of billions of dollars Monday as countries around the world scrambled to save their own banks and bolster whatever investor confidence remained. Markets plunged in nations from Brazil to Saudi Arabia as some indexes saw their steepest drops in 20 years. Precipitous falls halted trading on several exchanges. …

“Across Europe, governments have sought to contain the damage by guaranteeing deposits and cobbling together bailout packages for struggling financial institutions, including some of the biggest names in European banking. But those efforts failed to stem the flight from the markets.”

Mostly individual actions
Although some European governments called for coordinated actions, individual countries have mostly acted alone.

“Despite proposals from France and Italy, the European Union has eschewed any common approach to the crisis,” the New York Times noted, “mainly because Germany has balked, afraid of being burdened with the costs of rescuing non-German banks.

“Instead, European officials have opted for a tapestry of measures intended to restore confidence in battered financial markets.”

That changed somewhat today as European finance ministers sought to act in unity. Still, the Washington Post reported, “Meeting in Luxembourg amid calls for a more coordinated response to the crisis, the ministers failed to come to terms on any broader proposals beyond raising the deposit guarantee from the current 20,000 Euros ($27,000). The ministers, representing the 15 countries that use the Euro, said in a statement that they would continue monitoring the situation and coordinate their individual responses.”

The Times story said of Europe’s inability to act in concert:

“The lack of coordination — despite pledges to the contrary from European Union officials Monday and a plea from the head of the International Monetary Fund to step forward with concrete plans — raised the prospect that the European Central Bank would need to help mop up the mess by cutting interest rates, a move hinted at by the bank’s president, Jean-Claude Trichet, last week.

” ‘We’ve seen both at the national level and more importantly at the international level, that there’s no strategy,’ said Richard Portes of the Center for Economic Policy Research in London, adding that ‘it reflects the underlying fact that individual governments don’t have a clear sense of where to go.’ 

“Anders Borg, the Swedish finance minister, said: ‘We need to find a common solution as one country’s solution may be another country’s solution.’ “

Iceland negotiating with Russia
Iceland, meanwhile, was forced to nationalize Landsbanki, its second-largest bank, and said it is negotiating a $5 billion loan from Russia to try to avert a major crisis — after being rebuffed elsewhere.  Iceland is not a member of the European Union.

What are European observers thinking about all this?

In a piece called “No end in sight,” the Economist writes: “In Europe, an unseemly mishmash of bank rescues and a scramble across the continent to beef-up national deposit-protection schemes have done nothing to solve the paralysis in money markets. Stock markets steadied themselves a little, early on Tuesday October 7th, after a series of dramatic falls on Monday. But the overnight dollar London interbank offered rate (LIBOR), the rate that banks are charged for borrowing from each other and other investors, climbed by a heart-stopping 157 basis points to 3.94%.

“European Union leaders continue to issue reassuring statements promising that governments will take “whatever measures are necessary” to prop up the financial system. Such blandishments ring increasingly hollow.”

Susan Albright, a MinnPost managing editor, writes about national and foreign developments. She can be reached at salbright [at] minnpost [dot] com.

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Comments (1)

  1. Submitted by Dan Hoxworth on 10/07/2008 - 11:41 am.

    Just like with the Iraq War, we as a nation have abandoned an opportunity to lead the world in crafting a global solution to the financial crisis. As we found with Iraq, a unilateral solution puts undue burden on our economy and is destined for failure.

    Rather than the Treasury Secretary going public with his Chicken Little sky is falling appearances (which were so reminiscent of Bush’s imminent fear of weapons of mass destruction), we could have reached across the Atlantic to Europe and to our global trade partners in China and Japan to discuss and see if we could craft a solution that instills confidence. Instead, we ignore our interconnectedness and are quickly finding that the Bailout despite its massive size has had minimal impact in calming the international financial markets. In the meantime, we have accelerated our status as a debtor nation and thereby increased our dependence. Had our leaders sought a global solution, we would have solidified our interdependence instead of the dependence on other nations.

    As much as we hate to admit it and as contradictory as it may sound to a Republican administration, we are increasingly the global “Welfare state” due to total dependence on foreign capital flows to prop up our unsavory fiscal practices and trillion dollar mistakes.

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