Britannia Radio

TELEGRAPH   2.10.08  at 6.49pm
Greece joins bailout stampede as Germany vows no blank cheques
The Greek government has issued a blanket guarantee of all bank 
deposits after panic withdrawals by customers in Athens and 
Thessaloniki, creating an unstoppable stampede across Europe for an 
EU-wide bail of the financial system.

By Ambrose Evans-Pritchard


Greek officials said the state would cover "all bank deposits, 
whatever the amount." The move follows the dramatic decision by 
Ireland this week to guarantee the deposits and debts of its six 
biggest lenders in the most sweeping bank bail-out since the credit 
crisis began.
"The whole of Europe will have to do same thing, otherwise Europe 
will have a split banking system," said Hans Redeker, currency chief 
at BNP Paribas. British banks are already facing a haemorrhage of 
deposits to Irish banks that now enjoy the AAA sovereign rating of 
the Irish state.

Greece has so far escaped attention as the financial storm breaks 
over Europe, but the economy is deeply unbalanced. A torrid credit 
boom has been allowed to run unchecked, leading to a current account 
deficit of 15pc of GDP -- the highest in the eurozone.

While property losses are modest so far, the Greek banks have run 
into trouble rolling over short-term debts after the near total 
closure of Europe's capital markets. The liabilities of the Greek 
banks are roughly ?320bn euros.

As rumours flew in another day of fast-moving drama in Europe, the 
credit system continued to flash warning signs of extreme stress. 
Three-month Euribor - the benchmark rate used for floating mortgages 
and financial contracts -- rose to a post-EMU record of 5.33pc.

Governments across Eastern Europe were forced to issue statements on 
Thursday assuring depositors that their banks were safe. Traders said 
Ukraine is on the brink of a currency crisis.

The Greek move puts fresh pressure on Germany to back the mounting 
calls for an EU lifeboat fund to shore up Europe's struggling banks, 
even though such a plans are anathema to Berlin. Chancellor Angela 
Merkel warned that there would be no "blank cheques" for those who 
get into trouble.

Berlin fears that any such fund is a Trojan Horse that could 
ultimately leave German taxpayers footing the bill for a massive bail-
out of the southern Europe as the region's booms turn to bust. Key 
ministers are now frantically trying to stop the idea gaining a 
serious head of steam.

Finance minister Peer Steinbrueck said German citizens should not 
have to step in "to stabilize situations for which other countries 
are responsible. To put it mildly, Germany is highly cautious about 
such grand designs for Europe. Other countries are free to think 
about it. I just don't see any German interest in it," he told the 
Wall Street Journal.

The comments are the clearest indication to date that Berlin will 
resist moves to create a pan-European treasury to back up the single 
currency, whatever the risk for the stability of monetary union.

Confusion reigned across Europe as different capitals gave briefings 
and counter-briefings on the lifeboat plans. French finance minister 
Christine Lagarde backed away from earlier ideas for a ?300bn rescue 
fund to help weaker countries cope with financial panics. "There is 
no such thing", she said .

Separately, The Netherlands has mooted a plan for each EU country to 
pay 3pc of GDP into a reserve fund.

A raft of ideas are to be discussed at an emergency summit of the 
French, British, German, and Italian leaders in Paris on Saturday, 
though it looks increasingly unlikely that anything of substance will 
be agreed.

The squabbling has exposed the deep flaws in the EU's crisis 
machinery. While the single currency spans fifteen states, each 
government controls its own fiscal policy and nationalist reflexes 
die hard.

Neelie Kroes, the EU competition commissioner, said that Ireland's 
decision to act unilaterally -- disregarding EU state aid rules -- 
risked a descent into the beggar-thy-neighbour mayhem of the Great 
Depression.
"When Europe was confronted with a banking crisis in the 1930s, 
governments decided to go national and close their borders. 
Protectionism was not the solution at the time, as we very well know. 
Let us not make the same mistake twice," she said. Brussels has 
already been overtaken by events.

David Owen, Europe economist at Dresdner Kleinwort, said Ireland had 
no choice, given the lighting pace of events on Monday. "Their banks 
were going down. No government can let that happen. They did exactly 
the right thing to ring fence this."

Angel Gurria, the head of the OECD club of rich nations, said Europe 
may not have the luxury of trying "piecemeal" responses as the 
financial storm turns violent. "Considering the exposure of European 
financial institutions, we might have to start thinking of a systemic 
plan for Europe if things don't improve on the other side of the 
Atlantic," he said.