Eurozone countries that gathered in Paris on Sunday for an emergency summit are prepared to provide guarantees for the refinancing of banks until the end of 2009, according to a draft joint declaration.
According to this text, states will be able to intervene in various ways to support bank financing in the interbank market, by providing guarantees, insurance, and "similar measures." The text also foresees that governments can exchange non-performing assets for government bonds to assist banks. This decision, according to the draft statement, will be applicable until December 31, 2009. Heads of state and government from fifteen eurozone countries began an extraordinary summit in Paris on Sunday evening, where they are expected to adopt decisive measures to exit the financial crisis. The draft declaration reiterates the commitment of European countries to prevent any bank failure that could jeopardize the entire financial system.
"Governments continue to maintain the obligation to prevent any failure of institutions that are important to the system, in an appropriate manner, including recapitalization," the text states. This joint statement should align national plans based on proposals from British Prime Minister Gordon Brown that combine partial nationalization of banks and government guarantees for interbank loans. The blockage of the interbank market is the main cause of the problems. Due to fears of bank failure, they no longer lend to each other. Banks that can no longer find the necessary funds to balance their accounts can quickly find themselves in difficulties, as has happened in several European institutions. Banks are also afraid to lend to businesses and households, which jeopardizes the entire economic and financial system. (Hina)
