France to host Saturday EU summit on crisis

Elaine Ganley ,  The Associated Press ,  Paris   |  Fri, 10/03/2008 1:35 AM  |  World

France on Thursday formally called an exceptional weekend summit to hash out a common European Union response to the spreading U.S. financial crisis, amid divisions among European officials about how closely to coordinate their action.

France's President Nicholas Sarkozy, who has pledged to protect his country's banks and depositors, denied that the leaders would consider a costly Europe-wide bank protection fund. But he sought to quell fears at home about a credit crunch by announcing a euro22 billion (US$30.6 billion) loan deal for small businesses.

Europe welcomed the approval in the U.S. Senate of a US$700 billion financial industry bailout. Lawmakers' rejection of an earlier version of the bailout had sent markets into a nosedive.

"We need a global effort to inject confidence in the financial markets and the United States, of course, have a major responsibility," European Commission President Jose Manuel Barroso said Thursday, welcoming the passage.

But officials indicated a U.S.-style bailout fund for Europe will not be on the agenda of the Saturday summit bringing together France, Germany, Britain and Italy and to be attended by top European officials including Barroso.

The summit's host, French President Sarkozy, on Thursday denied France was backing the creation of a special fund to rescue any crisis-hit European banks - a day after the French finance minister floated the idea. Some reports put a euro300 billion (US$422 billion) price tag on it. The suggestion was swiftly rejected by Germany.

"I deny both the price and the principle," Sarkozy said Thursday.

Later, Sarkozy announced that the state make available euro22 billion (US$30.6 billion) and earmark it for small business loans. The measure comes amid growing fears among French households and companies about tightening credit.

The French president's office said the Saturday summit would prepare the EU members of the Group of Eight for broader talks on the financial crisis with the club of leading industrialized nations. No meeting of the full G-8 has been announced, and Sarkozy's office did not further elaborate.

Sarkozy has pushed for a global summit on the crisis, saying capitalism must be restructured to better adapt to a new era.

France currently holds the rotating EU presidency and Sarkozy was clearly seeking a common position as Europe braces for the shockwaves from across the Atlantic to squarely hit European shores.

Dutch Prime Minister Jan Peter Balkenende, visiting Paris, stressed his opposition to a European rescue fund, but raised the possibility of a ceiling on the intervention each of the 27 EU countries could make, suggesting 3 percent of GDP.

"Member states must be ready to inject capital for financial institutions in need," he told reporters after lunch with Sarkozy. "We need a common position."

He expressed regret that Ireland moved unilaterally Tuesday to guarantee all deposits at Irish-owned banks. The move by Dublin set off debate among European capitals on how to face down the uncertain future.

Italy said it would take all measures to protect the banking system and savings accounts.

"The consequences of the crisis on the Italian banking and insurance systems remain contained," Finance Minister Giulio Tremonti told the lower chamber of parliament.

Italy has already sought protective cover with stock market regulator Consob on Wednesday putting a monthlong ban on short-selling bank and insurance stocks. Italian bank giant Unicredit has seen its value fall as much as 23 percent since Monday.

Meanwhile, the European Central Bank left its key interest rate unchanged Thursday - but President Jean-Claude Trichet's downbeat remarks on the economy in the countries that use the euro led many analysts to predict a rate cut is on the way. Some analysts think the Bank of England may do the same next week, and may even cut as much as a half-point.

Underscoring the many unknowns that Europe, and the world, are trying to grapple with, Trichet called the Saturday summit an "exceptional meeting" in an "exceptionally high level of uncertainty."

Besides Trichet and Barroso, Jean-Claude Juncker, the Luxembourg prime minister who is also the top European financial official also will be present.

 

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