Translated material
Sovereign regulation
Europe cannot find an agreed way out of the financial crisis
The financial authorities of the United States and Europe are not yet in a hurry to develop uniform measures to save the global financial system , although it is precisely a coordinated policy that investors expect from regulators. Moreover, yesterday the European finance ministers could not even agree among themselves on how to deal with the crisis. The only significant measure was the decision to increase the insurance amount for private deposits in European banks from 20 to 50 thousand euros. Moreover, some countries decided to increase the guarantee amount to 100 thousand euros.President George W. Bush yesterday called on the leaders of leading European countries to coordinate efforts to overcome the crisis in financial markets. This was announced by White House press secretary Dana Perino. According to her, the head of the American administration began his working day with calls to British Prime Minister Gordon Brown, French President Nicolas Sarkozy and Italian Prime Minister Silvio Berlusconi.
According to Bloomberg, experts expect that the heads of the world's central banks may take joint steps to revive the credit market. In particular, we are talking about a coordinated reduction in interest rates. The market believes that following the meeting on October 28-29, the Fed will lower the cost of loans by at least 0.25 percentage points from the current level of 2%. As the crisis deepens, Japanese market participants also express confidence in a reduction in the discount rate in Japan - if not now, then in the coming months. Analysts are also counting on a reduction in ECB rates.
However, so far the facts indicate that the financial authorities of developed countries are in no hurry to join forces. On Monday, the regular monthly meeting of finance ministers of the eurozone countries was held in Luxembourg. However, its participants were unable to agree on measures to support the banking system, despite promises to do everything possible to stop the crisis.
Earlier, Italian Prime Minister Berlusconi and French Minister of Finance and Economy Christine Lagarde proposed developing a program to overcome the financial crisis following the example of the American Paulson plan, but this initiative did not find support. During the meeting, the ministers only came to a consensus on the need to protect deposits. “We all agree that we want to do everything possible to avoid a systemic collapse of financial institutions,” said Luxembourg Finance Minister Jean-Claude Juncker. “We have confirmed the agreements on the protection of deposits.”
As Minister Lagarde announced, the insurance amount will be increased from the current 20 thousand euros to at least 50 thousand euros. According to her, members of the EU Economic and Financial Council took into account that a number of EU countries (for example, Ireland) announced their intention to raise this threshold to one hundred thousand euros.
As is known, many British depositors transferred deposits to Irish banks after the country's authorities last week offered to protect not only deposits in six Irish banks, but also to provide guarantees on their debt obligations. The German government criticized Ireland's actions, considering them to distort the basic principles of the European market and calling such measures "a rescue umbrella that discriminates in the internal market." The European Central Bank argues that the Irish government should have properly informed the EU before announcing such bank guarantees. The European Commission's competition commissioner, Neely Cross, has demanded that Ireland extend guarantees to non-Irish banks to comply with European legislation prohibiting discrimination in favor of companies from one country. “We have already seen the negative consequences of one country’s unilateral actions,” said Joaquín Almunia, the European Commission’s commissioner for economic and financial affairs. “We need a clear and coordinated pan-European approach.”
Meanwhile, Spain also decided to raise the insurance amount to 100 thousand euros. For this purpose, a special fund with a volume of 30 to 50 billion euros will be created in the country, “which would provide opportunities for further financing the needs of citizens and enterprises,” Spanish Prime Minister Jose-Luis Zapatero said yesterday. Belgium made a similar decision to increase the guarantee amount to 100 thousand euros.
After such statements, it is not surprising that market participants do not believe in the special solidarity of the European authorities. “As far as I can tell, each country is going its own way,” said Peter Dixon, an economist at Commerzbank AG in London. “They may give empty guarantees that have little or no meaning.”
However, individual regulators act very intensively. The Bank of England yesterday made another injection into the financial system in the amount of 40 billion pounds sterling. According to Western media reports, all the largest British banks, against the backdrop of a sharp drop in the value of their shares, turned to the country's government with a request for financing. A representative of British Prime Minister Brown declined to comment on these reports, explaining this by the reluctance of the authorities to prematurely announce any anti-crisis measures.
The Swiss Federal Council stated that it will “take all necessary, including preventive, measures to ensure financial stability and guarantees for bank deposits in the context of the global financial crisis.” The document from the Swiss Ministry of Finance notes that the government is preparing “a package of emergency measures that, if necessary, will provide a quick effect to stabilize the situation in the financial sector even in the event of the bankruptcy of individual banks.”
The Dutch government has promised to repay the debt of Fortis Nederland, which was nationalized last week, to its former “parent” concern Fortis in the amount of 50 billion euros. For these purposes, a special loan from the Netherlands Bank is attracted.
The authorities on the other side of the Atlantic are not slackening their efforts either. The Federal Reserve on Monday announced it was doubling the size of its money auctions to $900 billion and plans to pay interest on required and excess bank reserves. Fed Chairman Ben Bernanke and Treasury Chairman Henry Paulson made it clear that they intend to support the short-term financing market and are considering the possibility of providing unsecured loans.
In addition, the Fed announced its intention to buy short-term commercial bills in large quantities to ease the liquidity crisis that has hit the country's economy. The Fed press release states that for these purposes, a special institution, the Commercial Paper Funding Facility (CPFF), will be created, under which an organization will function exclusively to ensure the implementation of this task. This organization will purchase short-term notes, both unsecured and asset-backed, directly from the holders.
Against this background, American markets opened in positive territory. The Dow Jones index rose 1.36 percent to 10,090.74 points. The Nasdaq index rose 0.76 percent to 1,877.11 points. Analysts said the market was correcting after a major collapse on Monday, when the Dow Jones lost 3.58 percent and fell below 10,000 points for the first time in four years on fears of a possible recession.
European indices also reached positive levels by the middle of trading. The French CAC 40 added 3.16%, the German DAX 1.81%, the British FTSE 2.94%.