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Europe moves to quell financial firestorm

(Agencies)
Updated: 2008-10-13 23:55

"We are designing a standardised program to purchase equity in a broad array of financial institutions," Kashkari said.

The German package, which was announced by the finance ministry, was to be discussed by Chancellor Angela Merkel's cabinet before being voted on by MPs with a view to becoming law this week.

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In return for the capital injection the German state is expected to take stakes in banks in a partial nationalisation similar to plans announced in Britain.

The package "is the answer that we must give in order to... achieve a more comprehensive solution for the entire financial system. Markets must have trust again," Finance Minister Peer Steinbrueck told the Bild daily.

French President Nicolas Sarkozy, who hosted Sunday's summit, was to flesh out his government's battle plan in a national televised address.

According to a report in Le Monde newspaper, the French plan would see the state provide a guarantee of up to 300 billion euros" (US$405 billion) on inter-bank loans, that would run until the end of 2009.

In Madrid, Prime Minister Jose Luis Rodriguez Zapatero announced that the Spanish government would set aside a maximum of 100 billion euros (US$134 billion) to cover similar loans.

Leaders from the 15 nations in the euro single-currency bloc agreed the outline of the rescue plan at an emergency summit in Paris on Sunday.

In addition to setting up funds to buy into banks, the model foresees money being set aside to guarantee inter-bank lending and free up credit markets that have been left reeling by the US sub-prime mortgage crisis.

European stock markets, which last week plunged by more than a fifth in their worst period since the 1929 crash, reacted positively.

In midday trade, Frankfurt's stock market was up a huge 6.15 percent and Paris soared 6.36 percent. London won 4.84 percent, Madrid rallied 6.85 percent and Zurich rocketed 7.63.

"We have had our first significant bounce in the markets for some time now," City Index market strategist Joshua Raymond said in London.

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