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Financial Crises Spread in Europe




Published: October 5, 2008
European nations scrambled on Sunday night to prevent a growing credit
crisis from bringing down major banks and alarming savers as troubles
in financial markets spread around the world, accelerating economic
downturns on three continents.

The German government moved to guarantee all private savings accounts
in the country on Sunday, hoping to reassure depositors who had grown
nervous as efforts to bail out a large German lender and a major
European financial company failed.

Late Sunday, it was disclosed that new bailouts had been arranged for
both of those companies, Hypo Real Estate, the German lender, and
Fortis, a large banking and insurance company based in Belgium but
active across much of the Continent.

The spreading worries came days after the United States Congress
approved a $700 billion bailout package that officials had hoped would
calm financial markets globally.

The moves came as federal regulators were trying to help resolve a
merger fight in the United States that could make investors more
uneasy. Court hearings were under way in New York on Sunday over
competing efforts by Citigroup and Wells Fargo to acquire Wachovia, a
large bank that nearly failed a week ago.

In Europe, meanwhile, the crisis appears to be the most serious one to
face the Continent since a common currency, the euro, was created in
1999. Jean Pisani-Ferry, director of the Bruegel research group in
Brussels, said Europe confronted ā€œour first real financial crisis, and
itā€™s not just any crisis. Itā€™s a big one.ā€

The European Central Bank has aggressively lent money to banks as the
crisis has grown. It had resisted lowering interest rates, but
signaled on Thursday that it might cut rates soon. The extra money,
aimed at ensuring that banks would have adequate access to cash, has
not reassured savers or investors, and European stock markets have
performed even worse than the American markets.

In Iceland, government officials and banking chiefs were discussing a
possible rescue plan for the country's commercial banks. In Berlin,
Chancellor Angela Merkel and her finance minister, Peer SteinbrĆ¼ck,
appeared before television cameras to promise that all bank deposits
would be protected, although it was not clear whether legislation
would be needed to make that promise good.

Mindful of the rising public anger at the use of public money to
buttress the business of high-earning bankers, Mrs. Merkel promised a
day of reckoning for them as well. ā€œWe are also saying that those who
engaged in irresponsible behavior will be held responsible,ā€ she said.
ā€œThe government will ensure that. We owe it to taxpayers.ā€

Stock markets fell sharply in early trading on Monday in Asia on
growing fears about the health of European banks and the resilience of
the global economy.

The Nikkei 225 index dropped 3.4 percent in Tokyo on Monday, the Kospi
index in Seoul fell 3.7 percent and the Standard and Poorā€™s/Australian
Stock Exchange 200 index in Sydney declined 3.3 percent. The events in
Berlin and Brussels underscored the failure of Europeā€™s case-by-case
approach to restoring confidence in the Continentā€™s increasingly
jittery banking sector. A European summit meeting Saturday did little
to calm worries.

President Nicolas Sarkozy of France and his counterparts from Germany,
Britain and Italy vowed to prevent a Lehman-like bankruptcy in Europe
but they did not offer an American-style bailout package.

The crisis has underlined the difficulty of taking concerted action in
Europe because its economies are far more integrated than its
governing structures.

ā€œWe are not a political federation,ā€ Jean-Claude Trichet, the
president of the European Central Bank, said. ā€œWe do not have a
federal budget.ā€

Last week, Ireland moved to guarantee both deposits and other
liabilities at six major banks. There was grumbling in London and
Berlin about the move giving those banks an unfair advantage. But
Germany proposed its deposit guarantee Sunday after Britain raised its
guarantee to Ā£50,000, or almost $90,000, from Ā£35,000.

Unlike in the United States, where deposits are fully guaranteed up to
a limit of $250,000 ā€” a figure that was raised from $100,000 last week
ā€” deposits in most European countries have been only partially
guaranteed, sometimes by groups of banks rather than governments. In
Germany, the first 90 percent of deposits up to 20,000 euros, or about
$27,000, was guaranteed.

The Paris meeting produced a promise that European leaders would work
together to halt the financial crisis and reassure nervous investors,
but even before the meeting began it was becoming clear that two
bailouts announced the week before had not succeeded and that a major
Italian bank might be in trouble. That bank, Unicredit, announced
plans on Sunday to raise as much as 6.6 billion euros, or $9 billion,
in capital.

Fortis, which only a week ago received 11.2 billion euros from the
governments of the Netherlands, Belgium and Luxembourg, was unable to
continue its operations. On Friday, the Dutch government seized its
operations in that country, and Sunday night the Belgian government
helped to arrange for BNP-Paribas, the French bank, to take over what
was left of the company.


Mr. Dougherty reported from Frankfurt, Mr. Schwartz from Paris and Mr.
Norris from New York. Katrin Bennhold and David Jolly contributed
reporting from Paris.