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Bonds Are a 'Safe' Investment: A Big Lie Gets Even BiggerFrance and Germany disagreed over how to prevent the global credit crunch from further hurting European banks. Germany, Europe's largest economy, does not want to set up a bailout / rescue fund that France is seeking. Luxembourg Prime Minister Jean-Claude Junker said the fund, which France argued should be as large as 300 billion euros or about $415 billion, isn't needed.
Economist Richard Felson said the United Kingdom also is against the idea, with Britain arguing that an ad hoc intervention policy would be sufficient for now. "A lot will depend on how the U.S. rescue package, provide it passes the U.S. House, performs in lowering overnight interest rates and restoring confidence," Felson said. "There's the sense in the U.K. that while the crisis extends beyond America's borders, the bulk of the bad-asset fallout will still be U.S.-based."
The U.S. Senate passed a revised rescue package, 74-25, Wednesday night and the U.S. House is expected to vote on the measure as soon as Friday.
However, the measure had little impact on overnight interest rates, at least initially. The London Interbank Overnight Rate, or LIBOR, rose for a fourth day, up 6 basis points to 4.21% Wednesday night, as banks continued to hoard cash.
However, the measure had little impact on overnight interest rates, at least initially. The London Interbank Overnight Rate, or LIBOR, rose for a fourth day, up 6 basis points to 4.21% Wednesday night, as banks continued to hoard cash.
Felson said along with lender confidence, and overnight interest rates, bank / financial institution health will probably determine whether the E.U. establishes a rescue package. "If the American plan does not reduce fear and increase lender confidence, and if more large European institutions come under pressure, the E.U. will act," Felson said. "No one wants to see contagion jeopardize the commerce and trade gains achieved in Europe during the past decade."
The European Union is expected to discuss a potential rescue plan again, along with other liquidity-enhancing options, when E.U. leaders meet on Saturday, The Financial Times reported Thursday.
Economic Analysis: Given that the bulk of the asset write-offs and company failures have been U.S.-based, the E.U.'s reticence is understandable. Still, from a proactive standpoint, one could argue that the E.U. should put a mechanism in place, with a modest amount of funding -- which these days is 'only' $100 billion -- then let it remain dormant if it isn't needed.
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Reader Comments (Page 1 of 1)
10-02-2008 @ 12:17PM
cadoglvr said...
I agree with Germany. No bail out, business needs to become more solvent and not rely so much on credit. Low interest rates have helped us get into this mess. people who dont really qualify have been given loans,because of low interest rates. I say let it adjust on its own.