Paris - To ease the global credit crunch and restore confidence in Europe's banking system, leaders of the 15 eurozone countries on Sunday proposed a wide-ranging rescue plan that includes a measure for governments to guarantee interbank loans.
French President Nicolas Sarkozy (R) greets British Prime Minister Gordon Brown (L) at his arrival at Elysee Palace, in Paris, France, 12 October 2008. EPA/YOAN VALAT
The loan-guarantee measure, decided at the first-ever eurozone summit, is intended to convince banks to lend money to each other.
The reluctance of banks to make loans is at the heart of the financial crisis and has pushed industrial nations to the brink of recession.
'States will have the possibility to guarantee bank loans made to other banks, so they can lend money to individuals and companies,' French President Nicolas Sarkozy told journalists after the summit.
France hosted the meeting because it currently holds the rotating European Union presidency.
According to a statement issued after the summit, the aim of the measure was 'to address funding problems of liquidity-constrained banks.'
'To this aim, governments would make available for an interim period and on appropriate commercial terms, directly or indirectly, a government guarantee ... of new medium-term (up to five years) bank senior debt issuance,' the statement read, referring to new interbank loans.
The plan will be applied until December 31, 2009, the eurozone leaders said. Sarkozy said that each country would be free to apply the measure in its own way.
The eurozone leaders called for governments to inject capital into struggling banks 'to allow financial institutions to continue to ensure the proper financing of the eurozone economy.'
According to their statement, eurozone governments will make capital available to financial institutions 'by acquiring preferred shares or other instruments,' which could amount to a partial nationalization of the banks for a limited time.
This measure is based on an initiative undertaken by British Prime Minister Gordon Brown.
On Wednesday, Brown's government agreed to inject 50 billion pounds (87 million dollars) over three years into Britain's largest banks.
Brown met with Sarkozy just before the summit got under way, because Britain does not use the single currency.
German Chancellor Angela Merkel said after the summit: 'We believe that with this tool kit we will be able to manage the finance crisis somewhat. Precisely that was our goal.'
The measures were taken, she said, 'to keep the economy running, to secure our citizens' property and to stabilize the finance system.'
Sarkozy, Merkel and Italian Prime Minister Silvio Berlusconi will make public their national measures simultaneously on Monday, the French president said.
Sarkozy said that the EU would speak to the US government about holding an international conference to reform the global finance system.
The summit was held after finance ministers of the Group of Seven industrial nations said Friday that 'all available means' should be undertaken to prevent 'important financial institutions' in their countries from collapsing.
The proposals are to be presented to the 27 members of the European Union at a summit meeting planned for Wednesday and Thursday in Brussels. In addition, proposals will be put forward then on reforming accounting rules for bank asset valuation.
Another aim of the summit was to show that Europe can act in a coordinated manner in the face of a serious crisis.
As the crisis spread from the United States, European nations largely acted unilaterally to try to contain the damage.
In addition to Britain's bail-out, Ireland guaranteed deposits in its six largest banks, and other countries acted on a case-by-case basis to rescue struggling banks.
Eurogroup head Jean-Claude Juncker said: 'If we had not acted quickly, the financial crisis would have turned into a political problem, with citizens losing faith in the EU model.'
Juncker, European Central Bank chief Jean-Claude Trichet, European Commission President Jose Manuel Barroso and Slovak Prime Minister Robert Fico also took part in the summit.
Slovakia is slated to join the eurozone on January 1.
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