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In Luxembourg today, finance ministers for European Union countries met to figure out what collective action they could take to stem the financial crisis. The result, a modest agreement to guarantee bank deposits in all EU countries up to about $68,000. The European ministers also agreed to take, and this is a quote, "all necessary measures" to improve the stability of banks, but no American-style bailout, at least not yet. From Luxembourg, NPR's Tom Gjelten reports.
TOM GJELTEN: The financial crisis now sweeping Europe presents a particular challenge to European unity. Governments worry first about their own national problems. And they're often inclined to address those problems on their own, even if it complicates things for their neighbors. In the most recent example, some countries guaranteed bank deposits. That action forced other governments to do the same for fear that if they did not, their depositors would move their accounts. Similarly, some governments are well-equipped to rescue their banks - the intervention reportedly planned in Britain is an example - while others are not. That raises the prospect of a more divided Europe just when united action is needed most. Joaquin Almunia of Spain is the European Commissioner for Economic Affairs.
Mr. JOAQUIN ALMUNIA (European Commissioner for Economic and Monetary Affairs): We are not living in our own national market. This is not the real world of today. The situation of financial markets requires an EU response and, building on this response, a global approach.
GJELTEN: Against that background, the European Union finance ministers were able to reach one agreement. All EU countries now have to insure bank deposits up to 50,000 euros, about $68,000. Countries that want to can insure up to 100,000 euros. The finance ministers also agreed on principles EU governments should follow when providing new capital for their distressed banks. French Finance Minister Christine Lagarde summarized the agreement for reporters.
Ms. CHRISTINE LAGARDE (French Finance Minister): The document that you will see includes many different provisions, some of which have to do with our citizens and relate to this threshold, the 50,000 and 100,000. Other measures deal clearly with the distress in which some systemic financial institutions can find themselves in and for which we are clearly referring to measures that need to be taken, including recapitalization.
GJELTEN: The problem for the European Union is that it can't raise taxes or allocate funds the way individual governments can. And the current financial crisis has underscored those limitations. Everyone recognizes it would be more efficient and less costly for Europe to adopt a rescue plan for banks across the continent, but it's not practical. Philip Reading is the director for financial stability at Austria's central bank.
Mr. PHILIP READING (Director for Financial Stability, Oesterreichischen Nationalbank): In Europe, we simply don't have the institutional arrangements whereby a central government authority can simply agree to a Europe-wide budget to recapitalize banks. So it has to be, really, done country by country. Yes, and there are cross-border complications. That's really just one of the facts of life that we have to live with in Europe.
GJELTEN: For those European countries that have not joined the EU, the current financial crisis can be even more frightening. Iceland, which trades freely with Europe, but is outside the union, has this week been teetering on the edge of national bankruptcy. The country's government yesterday had to nationalize the second largest bank in order to keep it from failing. Prime Minister Geir Haarde addressed the nation today.
Prime Minister GEIR HAARDE (Iceland): What we are doing here is saving a banking system, saving the domestic banking system, and making sure that it can function properly.
GJELTEN: But Iceland has limited reserves to work with. The government is now looking for a $5 billion loan to help it through this crisis, not from its European neighbors though. Officials are traveling to Moscow this week to seek help from Russia. Tom Gjelten, NPR News, Luxembourg.