Paris - One day after the euro-zone summit on the finance
crisis, the French government was to present its bank rescue plan
following an extraordinary cabinet meeting later Monday.
The web site of the daily Le Monde reported Monday that the
proposal will include guarantees of up to 300 billion euros (408
billion dollars) to stimulate the paralyzed interbank lending system.
The guarantees will run until the end of 2009 and will cease once
the interbank market has resumed functioning normally, the daily
reported.
The guarantees are to run via a new mechanism that will accept
from banks all manner of safe credits, such as mortgages and business
loans, as collateral for capital.
The hope is that these guarantees will encourage banks to lend to
each other and then make loans available to individuals and
companies.
The French government is also expected to establish a new
authority for state investment (SPPE) that will support the capital
resources of troubled financial institutions.
Its first measure, already agreed, will be to take on 5.7 per cent
of the struggling French-Belgian financial services group Dexia.
However, since French banks appear to be in better financial shape
than those in Germany and Britain, it is impossible to say how much
this measure will cost. French media have reported that the SPPE
could control up to 30 billion euros.
The French parliament is slated to discuss the plan this week,
with a vote in both houses expected by Friday.
The measures, in one form or another, were agreed late Sunday by
the leaders of the 15 euro-zone nations meeting in Paris.
According to Dominique Barbet, an economist for the French bank
BNP Paribas, the proposals to support interbank lending and
struggling financial institutions 'look okay,' but they have probably
come too late to avoid a recession.
'The problem is that no matter what measures you take you will not
avoid a credit crunch,' Barbet said. 'We are heading for tough
economic times.'
However, without the plan the industrial nations would have
experienced a depression, he said. 'In this regard, a recession is a
kind of best-case scenario.'
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