Europe moves to guarantee debt

Paris: A draft declaration by leaders of countries that use the euro currency says their governments would temporarily guarantee future bank debt to encourage lending and ease credit markets.

The declaration says the governments would guarantee "for an interim period and on appropriate commercial terms" new debts caused by bank lending during the next five years.

The statement says "this scheme would be limited in amount, temporary and will be applied under close scrutiny of financial authorities until December 31, 2009."

The leaders of the 15 euro zone countries opened their meeting here on Sunday in an emergency summit to find European solutions to the global financial crisis.

President Nicolas Sarkozy predicted that "an ambitious, coordinated" plan would emerge from the meeting held nearly a month after the collapse of US investment giant Lehman Brothers set off a world share crash.

British Prime Minister Gordon Brown was to address leaders of the 15-nation eurozone and explain his plan to protect British banks that has emerged as a model for action to address the meltdown.

Brown's government has set aside £250 billion (Dh1.55 trillion) to guarantee inter-bank lending, £200 billion in short-term loans and £50 billion to buy stakes in major banks.

Buying equity stakes in banks and offering sovereign guarantees for loans were seen as vital to shore up confidence in financial institutions and end panic-selling on the stock markets.

Only the state can restore trust to financial markets now, German Chancellor Angela Merkel was quoted as saying on Sunday.