World economic crisis: France moves into recession

The French premier, Francois Fillon, today warned that the world was “on the edge of the abyss” as his country moved into an official recession.

Fillon’s comments, blaming an “irresponsible” financial system, came as the Dutch government seized control of bancassurer Fortis’s Netherlands operations in a €16.8bn (£13.06bn) deal greed with the Belgian and Luxembourg authorities.

The effective nationalisation, forced upon the governments by the scale of the financial meltdown, includes Fortis’s interests in Dutch bank ABN Amro.

The shock decision came just days after the three governments injected €11.2bn into Fortis, Belgium’s biggest bank, to keep it afloat.

Fillon was speaking on the eve of today’s emergency summit of EU leaders in Paris to try to find collective ways of restoring confidence.

He said that the president, Nicolas Sarkozy, who called the talks, would propose that Europe “make its banking systems secure, unfreeze credit and co-ordinate its economic and monetary strategy”.

“We do not rule out any option to guarantee that no banking institution will be forced into bankruptcy. The state will intervene each time it’s necessary to secure our banking system,” he said. However, opposition from other governments has ruled out a US-style bail-out plan.

European governments have this week mounted rescue operations for several banks. But Gordon Brown, Germany’s Angela Merkel, Italy’s Silvio Berlusconi and Sarkozy are expected, at most, to agree to set aside national reserves to help ailing banks.

The four leaders are to discuss the option of a harmonised approach to raising guarantees for bank deposits after Ireland’s controversial go-it-alone decision to offer a limitless guarantee for individual savings and business deposits at six main banks.

European commission officials indicated that the Irish government, which failed to consult it and has not yet formally notified its scheme, could be forced to rescind it under EU competition rules. Experts warned that the Irish decision could trigger a fragmentation of Europe’s cross-border banks.

The Greek government, under pressure from Brussels rowed back from its decision to mimic the Irish. Current EU laws set the minimum deposit guarantee at €20,000, but pressure is on to increase this to prevent a run on banks.

Today’s meeting is also due to discuss changes to accounting standards to avoid under-valuing banks’ risky assets and curbs on executive pay in the financial sector.

Official data said the French economy will probably contract by 0.1% in both the third and fourth quarters of 2008, following a 0.3% contraction between April and June. But the government said the economy would still register 0.9% growth for the year.

David Gow in Brussels
Friday October 03 2008 17:43 BST

Source: The Guardian

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