Europe's finance ministers met in Luxembourg yesterday, hoping to draw a line under the continent's financial crisis. While they stopped short of agreeing a rescue package for ailing banks, they raised deposit guarantees to ?50,000 (Dh250,000) per account. Their efforts seemed more aimed at reassuring the consumer than individual institutions. While they were talking, billions were being wiped off bank shares in London, with Royal Bank of Scotland down 34.5 per cent, Lloyds TSB down 18.5 per cent, HBOS down 17.7 per cent and Barclays down 13.3 per cent, at one stage. Three of the banks are planning to ask Alistair Darling, the chancellor of the exchequer, for a recapitalisation of around £15billion (Dh97.5bn) each, with half upfront and the other half available if needed, according to the BBC. Lloyds TSB had agreed a merger with HBOS; that may now be in doubt. Analysts are interpreting such moves as a partial nationalisation that would dilute shareholder equity. Shares were mainly up in Europe yesterday, with London's FTSE-100, France's CAC-40 and Germany's DAX all in positive territory. The European Central Bank also pumped ?50 billion into interbank markets, in an attempt to keep banks lending to one another. This may not be enough: the world's major banks may need US$675bn (Dh2.5 trillion) in fresh capital over the next several years, according to the International Monetary Fund (IMF). In its annual report on the financial system, the Washington-based multilateral agency also raised its estimate of losses tied to US loans and securitized assets to $1.4 trillion. "Strains afflicting the global financial system are expected to deepen the downturn in global growth and restrain the recovery," the report said. "The risk of a more severe adverse feedback loop between the financial system and the broader economy represents a critical threat." One effect of the financial crisis is to blow a hole in any signs of European unity. While the finance ministers were in session in Luxembourg, Jose Manuel Barroso, the president of the European Commission, was warning that "renationalisation" of the financial system could harm integration. He also warned that aid by EU member states to their financial sectors should not lead to competition distortion, adding that the sheer size of some European banks was making national solutions insufficient. His comments reflect Brussels' concern that member states are ignoring the EU single market rulebook, in particular the limits on state aid to industry and budget discipline, in their haste to react to the market turmoil. "A succession of national responses may cause the renationalisation of the European financial system, which would be a setback for European integration," said Mr Barroso. "I want to underline that the fundamental principles of the single market cannot be compromised. It would be unacceptable that measures aimed at helping the banks in trouble would be used to strengthen their positions compared to competition." Emerging markets, which had until recently been resilient, are coming under increasing pressure. "The cost and availability of financing have become more difficult," the IMF report said. "The scope for spillovers to emerging market equity markets has risen."In the Middle East, stockmarkets continued to fall. Egypt's CASE 30 was the hardest hit, having been closed on Monday during the worldwide sell-off. The biggest fallers included the Commercial International Bank, down 40 per cent and Six of -October Development and -Investment, down 42 per cent. At one point the market was down more than 16 per cent, before rallying to close down 8.14 per cent. It is now at its lowest level since November 15 2006. Saudi Arabia's Tadawul closed at 6253.72, a fall of 7.03 per cent, its lowest level since Aug 16 2004. The Dubai Financial Market fell for the third day in a row, closing down 5.14 per cent to close at 3369.15. This is its lowest close since March 10 2005. The Abu Dhabi -Exchange fell 4.58 per cent to close at 3395.31. Muscat's index was down 7.29 per cent, -Doha's 1.55 per cent, Bahrain down 1.33 per cent and Kuwait's index - which the government is propping up by pumping money into investment funds - also closed down 2.64 per cent. "The markets are being murdered and the situation is very, very scary," said Kemal Lazaar, chief executive of Swicorp, a -Saudi-based investment bank. The Dow Jones Industrial Average and the Nasdaq, the two leading American indexes, were both up in early trading, boosted by the news that Federal Reserve is starting to buy large amounts of short-term debt from companies in an effort to unfreeze the money markets. * additional reporting by Andrew Foxwell and agencies rwright@thenational.ae
