Word: european
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...News of plans by the U.S. and European governments to inject cash into troubled banks helped propel stock markets worldwide to record gains Monday and Tuesday. For the first time in weeks investors dared to hope that the financial meltdown may be abating. But budding optimism in Europe and the U.S. may not travel far. Emerging countries lacking the financial muscle to prop up their economies still face troubles ranging from slowing trade to food shortages. "In many developing countries, the most urgent crisis is not what is happening in financial markets but what has happened in commodity markets," says...
...their infinite wisdom, European governments have now decided that letting the state effectively get control of ailing banks is the way out the current financial mess. But the French government really messed up the last time it had control of a chunk of the nation's banking system. That was when President Francois Mitterrand nationalized banks in the 1980s. In fact, for a good part of the 1990s, the French budget was knocked sideways because of the losses incurred at just one state-run bank, Credit Lyonnais. The German state's track record in banking isn't much better. Regional...
...that kind of state involvement is a central part of the European bailout plans, which involve governments recapitalizing banks in trouble in exchange for a slice of equity. In plain English, that's called partial renationalization. How much equity depends on the size of the bailout, and for the moment, other than in Britain, precise details about which banks will receive how much and in exchange for what remain to be negotiated. Along with the fresh capital, governments are proposing a series of other measures designed to restore confidence in the banking system by guaranteeing deposits, jump-starting interbank lending...
Markets loved it, and have rebounded. And the Europeans are feeling pretty good about it all, especially French President Nicolas Sarkozy, who got the various governments to agree on a coordinated plan after two weeks of nasty bickering. Built into the European bailout is a subtle but unmistakable anti-American touch. For the Europeans are taking a very different tack from the U.S. in mounting their bailout, and quite deliberately so: they think U.S. Treasury Secretary Hank Paulson badly messed up his bailout...
...Will the European plans work? There is one hopeful precedent, in Sweden, which in the early 1990s solved its own banking crisis by guaranteeing deposits, injecting huge amounts of liquidity into the banking system via the central bank, and forcing banks to write down the value of their assets very quickly. In describing why that bailout worked, Urban Baeckstroem, the former Swedish central bank president who played a central role in the rescue, has identified some other vital measures. The first is that the Swedish government quickly moved to clean up government finances at the same time as it bailed...