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European govts to guarantee inter-bank loans -

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European govts to guarantee inter-bank loans

The World Today - Monday, 13 October , 2008 12:20:00

Reporter: Stephanie Kennedy

ELEANOR HALL: To Europe now where as we heard earlier, 15 countries have unveiled a bailout plan
for salvaging their banking systems from potential ruin.

Under the rescue plan governments will guarantee loans between banks until the end of next year and
will inject capital by buying preference shares in banks in a scheme similar to the UK plan.

In London, Stephanie Kennedy reports.

STEPHANIE KENNEDY: European markets tumbled ten per cent in the first ten minutes of trading last
Friday in the meltdown that swept through the global markets.

So after weeks of division, the 15 countries that use the Euro currency held a crisis summit over
the weekend to stop their share market's from haemorrhaging.

The president of the European Commission Jose Manuel Barroso unveiled a raft of measures adopted by
the Eurozone.

JOSE MANUEL BAROSSO (translated): We will take measures to ensure there is sufficient liquidity and
we will restart the interbank lending market. We'll re-capitalise financial institutions under
conditions compatible with our rules, and also, as it's already been stated, we will protect
savers. In other words, we will defend European citizens, European families.

STEPHANIE KENNEDY: The French President, Nicolas Sarkozy insists this is not a gift to the banks
and there are strings attached.

NICOLAS SARKOZY (translated): The banks and the market operators must realise the scale of the
challenge. We expect them to show a sense of responsibility commencement to that shown by the
leaders of the Euro group who have made an unprecedented effort to throttle the crisis. Our unity,
our determination is complete and I would say to our fellow citizens throughout Europe, that they
can indeed, they must have trust in us.

STEPHANIE KENNEDY: The European bailout is much like the trillion dollar rescue plan the British
Government announced last week. Europe has struggled to come up with a united front to tackle the
financial crisis.

It was almost impossible to reach a Europe-wide agreement particularly as no one country wanted its
funds used to bailout another nations banking system. And until now they've taken a go-it-alone
approach, but that clearly failed.

Under this plan, each country is only responsible for its own banks.

JOSE MANUEL BAROSSO (translated): Since the beginning of this crisis we have worked actively to
provide a European response which is closely co-ordinated in an unprecedented way to face up to an
unprecedented crisis.

We think it's very important to ensure coherence. That is why we see ourselves acting as a bridge
between the different initiatives and between all the different players, including of course those
of the Eurozone and to the other member states such as the United Kingdom.

STEPHANIE KENNEDY: Nicolas Veron is an economist with the Bruegel Institute in Paris.

NICOLAS VERON: The principles are sound. You need recapitalisation, you need liquidity provision.
The difficultly in a European context is the recapitalisation is much more complicated when you
have cross-border banks - banks which have operations in different European countries at once. That
involves negotiation among different governments and it is getting more complicated but it is
possible.

STEPHANIE KENNEDY: The cost of the package is yet to be decided, but it will run into hundreds of
billions of dollars if not trillions.

In London this is Stephanie Kennedy reporting for The World Today.