14 Oct 2008

Europe acts to strengthen banks

5:23 pm on 14 October 2008

Major European economies have announced rescue schemes to shore up their banks.

Germany has approved a package worth up to 500 billion euros, France will spend about 350 billion euros, and Spain has set aside 100 billon euros.

President Nicolas Sarkozy said no financial institution would be allowed to collapse.

The bulk of this money will be used to guarantee lending between banks - part of a plan agreed to this weekend by the 15 nations that use the euro.

The cash injection by France, German and Spain was echoed by similar moves by Austria and Italy.

Austria is to spend up to 85 million euros, while the Italian government pledged to inject as much money as needed without giving any figures.

France and Germany will also use the cash to take stakes in ailing banks.

The announcements helped to lift investor confidence, with stock markets rising worldwide.

The two-fold plan involves guaranteeing lending between banks and taking stakes in financial institutions - similar to the bank rescue in the UK announced last week.

Other moves

Also on Monday, the Britsh government said it would inject up to Stg37 billion into Royal Bank of Scotland, Lloyds TSB and HBOS.

In addition, the Spanish government last week announced the creation of a 30 billion euro fund to buy assets from Spanish banks to help stabilise the lending industry and unfreeze credit.