AMERICA SYSTEM OF GOVERNMENT .
President Bush is the Head of the 50 States of American government
E U SYSTEM OF GOVERNMENT .
EACH MEMBER NATION has its Head of State, government competing with each
other.
HERE ARE THE PROBLEMS :
European Crisis Deepens; Officials Vow to Save Banks (Update3)
By Sandrine Rastello
Oct. 6 (Bloomberg) -- The credit crunch deepened in Europe as government
leaders pledged to bail out troubled banks and protect depositors.
BNP Paribas SA will take control of Fortis's units in Belgium and Luxembourg
after government efforts to ensure the company's stability failed, while
Germany's government and financial institutions agreed on a 50 billion euro
($68 billion) rescue package for Hypo Real Estate Holding AG. U.K. Chancellor
of the Exchequer Alistair Darling said Britain is ``ready to do whatever it
takes'' to help its banks.
The developments yesterday came a day after a summit in Paris where leaders of
Europe's four biggest economies stopped short of a plan mirroring the $700
billion rescue in the U.S. to counter the worst financial crisis since World
War II. Instead, they agreed to work together to limit the economic fallout,
ease accounting rules, and seek tougher financial regulations.
``Until now the solutions have appeared to be uncoordinated, so perhaps it's
time for a more coordinated approach globally,'' said Torsten Slok, an
economist at Deutsche Bank AG in New York. ``It's not just the U.S. and Europe,
it's banks in every part of the world.''
The euro slid to a 13-month low against the dollar and Treasuries rose as the
credit crisis spread outside the U.S., prompting investors to opt for less
risky investments. Asian stocks fell for a third day, led by financial
companies.
`New World'
French President Nicolas Sarkozy, who convened the Oct. 4 meeting, called for a
global summit ``as soon as possible'' to implement ``a real and complete reform
of the international financial system.'' He said ``all actors'' must be
supervised, including credit-rating firms and hedge funds. Executive-pay
systems must also be reviewed, he said.
``We want a new world to come out of this,'' Sarkozy said. ``We want to set up
the basis for a capitalism of entrepreneurs, not speculators.''
Finance ministers from the Group of Seven industrialized nations meet in
Washington later this week.
German Chancellor Angela Merkel's opposition to collective action underscored
the hurdles to a European front. ``Each country must take its responsibilities
at a national level,'' she told a joint press conference after the summit.
Germany will guarantee the savings of private account holders, Merkel said, in
a bid by Europe's biggest economy to prevent a rush of withdrawals. Denmark
said today commercial lenders will provide as much as 35 billion kroner ($6.4
billion) over the next two years to a fund to insure depositors against losses.
Deposit Guarantees
Until now, German savings accounts, including those of small, privately held
companies, have been guaranteed by 180 banks in Germany, the BDB private banks
group said on Oct. 2. The guarantees of the banks covered 90 percent of an
account's balance to a maximum of 20,000 euros, the group said.
The German and Danish governments' commitments follow similar verbal pledges by
Sarkozy and Italian Prime Minister Silvio Berlusconi, both of whom have
promised to prevent losses for depositors in their countries. Ireland is
guaranteeing banks' deposits and debts for two years, to restore confidence in
the country's financial industry.
Amid the race to shore up Europe's faltering financial institutions, BNP
Paribas, France's biggest lender, agreed to pay 14.5 billion euros for control
of Fortis's units in Belgium and Luxembourg.
BNP Paribas
The sale comes after a Sept. 28 bailout failed to stabilize what was Belgium's
biggest financial-services provider, as clients withdrew money and the company
had trouble obtaining loans. Fortis received an 11.2 billion euro capital
injection from Belgium, the Netherlands and Luxembourg.
The Belgian government will have an 11.6 percent stake in BNP Paribas, and
Luxembourg a 1.1 percent holding, after the purchases are completed, BNP
Paribas said in a statement today.
On Oct. 3, the Dutch government took control of Fortis's units in the
Netherlands for 16.8 billion euros after deciding the initial rescue didn't go
far enough.
Meanwhile, Hypo Real Estate won a reprieve after Germany's finance ministry
said the country's banks and insurers agreed to double a credit line for the
company to 30 billion euros. The federal government's guarantee for the credit
line remains unchanged, Torsten Albig, a spokesman for Finance Minister Peer
Steinbrueck, said late yesterday in an e-mailed statement.
Too Big to Fail
Munich-based Hypo Real Estate had earlier announced that a government-backed 35
billion-euro bailout plan collapsed after commercial banks withdrew their
support. The government and the Bundesbank have said that the nation's
second-biggest property lender is too big to fail.
The Hypo reprieve comes after Dexia SA, the world's biggest lender to local
governments, got a 6.4 billion euro state-backed rescue on Sept. 30. Belgium's
federal and regional governments, France and the company's largest shareholders
will supply the funds for Brussels- and Paris-based Dexia.
Meanwhile, UniCredit SpA, Italy's biggest bank by assets, said it planned to
boost capital by as much as 6.6 billion euros in an effort to calm investors'
concerns about the strength of the lender's finances.
The capital-raising project approved late yesterday by the bank's directors
includes replacing the lender's cash dividend for 2008 earnings with 3.6
billion euros of new shares, and selling 3 billion euros of convertible
securities.
Helping Banks
In the U.K., Darling said the government, which took over Bradford & Bingley
Plc last week, is ready to offer further support to banks that may get into
financial difficulty. He did not rule out a further injection of capital for
failing institutions.
``We are ready to do whatever it takes, and that is, we've put money in to help
banks generally,'' Darling told the British Broadcasting Corp.'s Sunday AM
program. ``There are other measures we will be taking too, and I will announce
them when we are ready to do that.''
Darling's boss, Prime Minister Gordon Brown, was among the leaders gathered in
Paris, along with Berlusconi, Luxembourg Prime Minister Jean-Claude Juncker,
European Commission President Jose Manuel Barroso and European Central Bank
President Jean- Claude Trichet.
Severe Crisis
``The good news out of the Paris meeting is that the European heads of state
now recognize the severity of this crisis,'' Goldman Sachs Group Inc.
economists Natacha Valla and Erik Nielsen said in a note to investors. ``A
pan-European approach would be much preferred, but given the urgency and
complexities of organizing such measures between different fiscal regimes,
national measures -- coordinated to the extent possible -- might still be good
enough.''
The leaders agreed on policy recommendations touching on regulation and
accounting and said they'd press for looser enforcement of budget and
competition rules at the EU level.
They said they would seek to harmonize guarantees of deposit levels. The U.K.
bank regulator increased its insurance ceiling to 50,000 pounds ($88,300) per
account from 35,000 pounds to stem a flow of funds to Ireland after officials
in Dublin guaranteed all debts and deposits of its banks.
Policy Recommendations
Anticipating increased spending, declining tax revenue, and government bank
takeovers, European leaders called for ``greater flexibility'' in the
application of the EU budget ceiling.
European finance ministers last month pledged to keep their budget deficits
below 3 percent of gross domestic product even as the economic slowdown dents
tax receipts and boosts welfare payments.
The leaders said they want to allow banks to keep some assets valued as if
they'd be held until maturity, instead of having to review their value each
quarter.
They also said they want to change accounting rules that require banks to
review their holdings each quarter and report losses when the values decline,
the so-called mark-to-market standard. Banks worldwide have written down more
than $580 billion since last year, according to data compiled by Bloomberg.
To contact the reporter on this story: Sandrine Rastello in Paris at [EMAIL
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