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Finance bosses meet in Berlin as bank-saving plans advance

Reuters/Fabrizio Bensch
4 min

The European Union is preparing coordinated action to prop up panic-stricken banks, as world financial chiefs meet in Berlin Thursday. Meanwhile, French and Belgian local authorities are locked in talks with governments and financial players over the crisis-hit Dexia bank.

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"We are now proposing to the member states to have a coordinated action to recapitalise banks and get rid of toxic assets they may have," Jose Manuel Barroso said in an interview with Euronews TV.

Dossier: Eurozone in crisis

The amount of money deposited by banks in the European Central Bank (ECB) reached record levels overnight, as banks chose its low interest rate over the risk of lending to each other.

On Wednesday US Treasury Secretary Timothy Geithner repeated his call on Europe to do more to prevent the crisis spreading around the world.

And German Chancellor Angela Merkel declared that helping banks would be “justified, if we have a joint approach” as politicians and finance chiefs scramble to prevent the European debt crisis spreading.

Markets were boosted by the prospect of action, climbing in Europe and Asia on Thursday.

Merkel was to chair a meeting of global finance big players in Berlin Thursday afternoon. IMF chief Christine Lagarde, World Bank boss Robert Zoellick, French Economy Minister François Baroin and outgoing ECB boss Jean-Claude Trichet were set to discuss reform of the international monetary system, as requested by France, but cannot ignore the European crisis.

Trichet, who hands over to Italian Mario Draghi on Thursday, was also expected to announce interest rate cuts at his last meeting with bosses of the central banks of the 17 eurozone countries.

Discussions as to how to save Dexia are “extremely complex”, according to sources speaking to the AFP news agency.

They involve the French and Belgian governments, the French state finaince institution La Caisse des dépôts, the French post office’s Banque postale, MPs and local authorities, to whom the bank made loans.

A plan presented to them Tuesday envisages breaking the bank in two.

On the one hand Dexia Municipal Agency, which holds about 80 billion euros in finance for local authorities, would be 65 per cent controlled by La Caisse des dépôts, 30 per cent Dexia and five per cent by La Banque postale.

A new bank would be created in France, 65 per cent owned by La Banque postale a,d 35 per cent by La Caisse des depots, which would take up the financing of French local authorities.

Luxembourg on Thursday announced that a foreign investor is ready to take over Dexia’s Luxembourg branch and that negotiations should be over by the end of the month.

 

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