European bank rescues trigger emergency government talks

LONDON // Bank rescues spread in Europe yesterday as political leaders began talks on the financial crisis with finance executives. Ireland unveiled a blanket guarantee for savings held by its banks, covering up to ?400 billion (Dh2.65 trillion) in liabilities, sending Irish financial stocks roaring up against a weaker sector trend. For the second time in a month, Russia briefly shut down its stock markets after just seconds of trading. France joined Belgium and Luxembourg in a ?6.4bn lifeline for Dexia bank and said it would come to the aid of savers with new bank measures by the end of the week. Britain's main opposition Conservative party urged the government to bring forward the UK's response.
The French president Nicolas Sarkozy began talks on the crisis with finance executives and has said he would meet this week with officials from Europe's G8 member states of Germany, France, Britain and Italy. Leaders are grappling to reassure global markets as financial shares reel, threatening the existence of major banks, which have locked up lending to one another despite enormous cash injections by central banks.
Among European banks, the top losers were Royal Bank of Scotland, Britain's Halifax Bank of Scotland and Italy's UniCredit. With yesterday's end of the financial quarter, Christian Noyer, a European Central Bank (ECB) governing council member, sought to reassure investors. "There is no reason to be frightened and to give in to panic," he told France's RTL radio. "I don't say there won't be things that will appear in the accounts that are published in the next weeks or months, but there is no drama in front of us."
However, his reassurances failed to stop demand for cash from the ECB soaring. The ECB lent banks ?190bn for seven days prior to yesterday after initially estimating it needed to drain ?40bn from the system. "The ECB is the only port of call at the moment," said Stefan Bielmeier, an economist at Deutsche Bank in Frankfurt. "The money market is barely working. Central banks are increasingly playing the role of a clearing house." Funding is also typically tight at the end of quarters as companies try to settle trades and buttress their balance sheets. Banks deposited a record ?44.4bn with the ECB at 3.25 per cent on Monday. "Funding markets are in complete disarray, central banks are unable to get banks to lend to one another, not to mention the outside world," said Christoph Rieger, a fixed-income strategist at Dresdner Kleinwort in Frankfurt. "The flow of credit will be seriously impaired for some time."
Another central bank governing council member, Ewald Nowotny, said Europe had been contaminated by the financial sector crisis in the US, but there was no need to launch a European bailout package as the European financial system remained healthy. "There is, of course, a certain contamination from the US, but Europe has reacted fast, and we currently see no elementary risk to the European financial system," he told the Austrian radio station ORF. Mr Nowotny, also the governor of Austria's national bank, said the central bank was determined that no system-relevant European bank would be allowed to collapse.
He was concerned with the latest large losses of European stock markets and the reported problems of several European banks. "We haven't seen developments like that since World War II, it is definitely worrying," Mr Nowotny said. "The real problem is insecurity." Following crisis talks at the Élysée Palace in Paris yesterday, Mr Sarkozy urged leading bankers to keep open their lines of credit to the French economy. The president "reminded banking establishments of their priority mission to finance the economy", a statement said.
It said the government would announce new measures by the end of the week aimed at securing the availability of credit to French families and business. Mr Sarkozy promised last week that no French depositor would lose so much as a euro in savings. In the UK, the opposition leader David Cameron said the Conservatives would work with the government to tackle the crisis. In an emergency statement to the Tory conference in Birmingham, he said UK parties should "stick together" and avoid the "political wrangling" seen in the US. "Democracies were being tested," he said and people were concerned about their jobs, savings and pensions.
The shadow chancellor George Osborne was travelling to London for meetings with the chancellor Alistair Darling and regulators at the Financial Services Authority. * With Agencies