(AFP) – Oct 13, 2008
LONDON (AFP) — European governments launched a multi-pronged attack on Monday to shore up confidence in the financial sector, buying stakes in banks and approving hundreds of billions of dollars in loans in a move to stabilise panic-stricken markets.
Shares in Europe and Asia rose strongly after a summit of European leaders agreed measures to guarantee inter-bank lending and make state funds available to buy banking stocks.
But new stormclouds emerged with the European Union saying that Hungary may need help after its currency slumped last week.
France, Germany and Italy were to announce national rescue packages later in the day, while Britain ploughed 37 billion pounds (47 billion euros/64 billion dollars) into a trio of struggling banks.
The German package alone was set to reach 470 billion euros (640 billion dollars), including around 70 billion euros in fresh capital and 400 billion euros in loan guarantees, according to officials.
In return for the capital injection the German state is expected to take stakes in the banks in a partial nationalisation similar to plans announced in Britain. A formal announcement was expected after a German cabinet meeting.
French President Nicolas Sarkozy, who hosted Sunday's summit, was to flesh out his government's battleplan in a national televised address.
The British government said it was "taking decisive action" with its huge investment in Royal Bank of Scotland, HBOS and Lloyds TSB as part of a scheme announced last week which set aside 50 billion pounds to buy shares in troubled institutions.
A fourth bank, Barclays, said it would not need to take part in the government scheme but would still raise 6.5 billion pounds from private investors.
Prime Minister Gordon Brown said he wanted people to regard their government as "a rock of stability" at a time of crisis.
"In extraordinary times, with financial markets ceasing to work, the government cannot just leave people on their own to be buffeted about," he said.
Brown, however, said it was essential Britain did not act in isolation.
"This is the first financial crisis of the global age... The events of the last few weeks have made clear that these are global problems that require global solutions."
Leaders from the 15 nations in the euro single-currency bloc agreed measures, similar to the British rescue plan , at an emergency summit in Paris on Sunday.
In addition to setting up funds to buy into banks, the model foresees money being set aside to guarantee inter-bank lending and free up credit markets that have been spooked by the US sub-prime mortgage crisis.
European stock markets, which last week plunged by more than a fifth in their worst period since the 1929 crash, reacted positively to the plan Monday.
About 75 minutes after the start of European trade, London was up 5.53 percent, Frankfurt rallied 6.24 percent and Paris soared 6.67 percent. Madrid and Zurich also jumped more than six percent and Vienna surged 13 percent.
Hong Kong closed up 10.2 percent. Tokyo -- Asia's largest stock market -- was shut for a public holiday after slumping 24 percent last week.
CMC Markets dealer Matt Buckland said the government interventions to prop up ailing banks had finally given equity traders "something to cheer as the new week gets underway."
European central banks also moved to free up frozen lending by providing commercial banks with unlimited amounts of dollars in a joint operation that might be reinforced by Japan.
The Bank of England, European Central Bank and Swiss National Bank will loan dollars to commercial banks for periods of seven, 28 and 84 days, an ECB statement said.
Banks worldwide need dollars to finance operations, but the market on which they would normally borrow them has seized up following the collapse in the US subprime mortgage market.
In a sign that a corner was being turned, oil prices ticked slightly higher. New York's main contract, light sweet crude for delivery in November was 3.04 dollars higher at 80.74 dollars a barrel, recovering from one-year lows reached on Friday.
But in an illustration of the overall fragility of confidence, the European Union said it stood ready to help Hungary's government after its currency, the forint, slumped last week. The IMF has made a similar offer.
Hungary's currency fell 10 percent in 24 hours last week and analysts said it was struggling because investors had panicked and moved their capital out of the country.
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