European leaders debate global financial woes

German Chancellor Merkel calls together heads of the world’s financial institutions to discuss current crisis.

World financial leaders met on Thursday to discuss the stability of the world monetary system [AFP]

The German chancellor has called together the heads of the World Bank, the International Monetary Fund, the World Trade Organisation, the European Central Bank and other organisations to discuss the world’s economy and the current financial crisis.

The closed-door talks on Thursday among the world’s chief financial heads at Angela Merkel’s office in Berlin followed Merkel’s meetings earlier in the day with Christine Lagarde, the IMF managing director and other senior representatives from the financial sector on the stability of the world monetary system.

The president of the European Commission, Jose Manuel Barroso, said the commission was looking at plans for a co-ordinated recapitalisation of banks.

Al Jazeera’s Nick Spicer, reporting from the German capital, said the talks were aimed at preventing a “contaminated bank, a bank that bought out too much of that Greek sovereign debt, from coming close to collapse”.

He said the talks were to “prevent a domino affect of banks going bust because of their exposure to the sovereign debt of those ailing Eurozone economies, infecting each other”.

Dexia’s troubles

Our correspondent said the leaders were meeting to try to stop the “freezing up”, and “not lending” of the banks, which affected small businesses and consumers, who would not being able to get any money out of the banks to fund their businesses and livelihoods.

Shares in Dexia, the Belgian-French financial institution, were suspended earlier on Thursday by the Belgium regulator pending a statement on its future.


Al Jazeera’s Jonah Hull reports on the financial crisis

Our correspondent said the French and Belgian governments had discussed how to split the bank’s finances because the bi-national bank, which “allowed cities and [local committees] to issue bonds, build swimming pools in schools” faces bankruptcy.

Dexia was among a number of European banks that passed stress tests by the European banking authority. Dexia’s possible bankruptcy has raised concern about other banks which also passed the stress tests.

While it is not publicly stated by European leaders, and it was previously considered “impolitic” to do so, European leaders have now asked the European banking authority to run stress tests factoring in a Greek default, Al Jazeera’s Spicer said.

“It’s interesting to note that they have asked the European banking authority to run the numbers so they know how much money they need to have ready to create a backstop … so Europe’s banks won’t go bankrupt because of exposure to the sovereign debt from these ailing eurozone economies,” he said.

In a precautionary move on Thursday, the Bank of England surprised markets by announcing it will pump another $116bn (75bn pounds) into the British economy to stave off a recession. 

Suffering from the aftershocks of the European debt crisis and government austerity cutbacks, the bank made the pledge to buy assets with new money in an attempt to stimulate the British economy.

Source : Al Jazeera, News Agencies


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