24 Feb 2009

Eurozone under severe strain - ECB chief

9:00 am on 24 February 2009

The head of the European Central Bank says the financial system in the euro zone is under severe strain.

President Jean-Claude Trichet said on Monday that net credit flows have started to fall in recent weeks and the strains in the financial sector are spilling over to the real economy.

European Union leaders in Berlin on Sunday backed a doubling of funds for the International Monetary Fund.

The government of Latvia collapsed on Friday and the currencies of Poland, the Czech Republic and Hungary are under severe pressure.

In France, Economy Minister Christine Lagarde pledged on Monday to extend up to 5 billion euros ($US6.3 billion) in additional aid to Banque Populaire and Groupe Caisse d'Epargne, two mutual banks which are merging.

The state could take a stake of up to 20% in the merged company, which will be France's second-biggest retail bank behind Credit Agricole.