Europe Failure to Response to the Financial Crisis is Threatening the Euro


On Monday, Europe's Dow Jones Stoxx 600 Index sank 7.6 percent, recording the steepest drop since October 1987. In addition, the euro fell below $1.35 against the dollar for the first time in more than a year. However, judging by the recent actions of the European Union members, this lesson hasn't taught them anything.

 Finance ministers of European Union, meeting in Luxemburg this week, achieved little beyond what the leaders of Europe's four biggest economies did this past weekend. Besides increasing the guarantee on consumer deposits to €50,000 from the previous level of €20,000 and imposing limitations on executive pay, EU officials haven't gone more far beyond the declaration of cooperation.

Moreover, looking at the outcome of the negotiations it's not likely that soon we can expect coordinated bailout plan, similar to those in the United States. Indeed, the credibility of European financial institution is left in the hands of each government. For example, Ireland, Greece and Germany have already given blanket guarantee of funds on private accounts. The problem here is that depositors from other countries may simply move their funds to those countries escalating the banking crisis even more.


Anna Fedec, contact@tradingeconomics.com
10/7/2008 11:29:03 AM