Wednesday, October 1, 2008

France's Sarkozy Battles Fallout From Financial Crisis

PARIS (AFP) — President Nicolas Sarkozy on Monday battled to contain fallout from the global financial crisis, moving ahead with plans for a world summit and calling a meeting of French banking and insurance chiefs.

France will host a meeting of European officials to prepare a summit "in the coming weeks to establish the basis of a new international financial system," said Sarkozy, whose country holds the presidency of the European Union.

Officials from Britain, France, Germany and Italy -- the EU members of the G8 -- will meet in Paris in the coming days to lay the groundwork, he said on the sidelines of an EU-India summit in the southern city of Marseille.

On Tuesday, the president is to meet at the Elysee presidential palace with banking and insurance company chiefs to take a close look at the health of French banks and review the credit level of French households and businesses.

The announcements came as the Franco-Belgian bank Dexia announced an emergency board meeting after liquidity concerns sent its shares into freefall.

Dexia's shares closed Monday down 30 percent on the Paris exchange, at seven euros worth less than a third of their value this time last year.

Belgium's federal government announced late Monday that it had tentatively agreed, along with its three main regions and shareholders, to help prop up the embattled bank -- less than 24 hours after stepping in to rescue Belgian-Netherlands banking and insurance giant Fortis.

"During consultations between the federal government and the three regional governments (Wallonia, Flanders and Brussels) this afternoon, they confirmed their in-principle agreement to take part in a joint effort to boost Dexia group's funds," a statement said.

The statement, distributed by the office of Prime Minister Yves Leterme, made no mention of financial details but Belgian media said the support could amount to seven billion euros (10 billion dollars).

On Sunday, the Benelux countries stepped in to partially nationalise Fortis, increasing fears the crisis that has wiped out several US and British banks was spreading across Europe.

Sarkozy warned in a major address last week that France would not be spared from the turmoil unleashed by the US banking crisis.

In Paris, the CAC 40 index plunged 5.04 percent to 3,953.48 points Monday in line with other European stock markets.

A further sign of economic trouble came with the release Monday of jobless figures showing that 41,300 people joined the ranks of France's unemployed in August, the biggest monthly spike since 1993, bringing the figure to 1,949,600.

The government convened a crisis meeting of job sector officials late Monday to discuss the figures, which have compounded worries about the financial storm.

Critics accused the government of deceit, saying that for months it had touted progress in economic reforms when the jobless situation was less than rosy even before the financial storm struck.

Last week Sarkozy insisted the government would "guarantee the security" of the French banking system and warned he would "not accept that a single customer loses a single euro" to collapsing banks.

The right-wing president won election in May 2007 on a promise to rev up the economy and bring unemployment -- long the nation's number one concern -- down to five percent.

The government unveiled a draft budget on Friday that scrapped a pledge to stamp out the deficit by 2012 and as Paris struggled to rein in public spending amid sluggish growth.

"We are in a quasi-recession," said presidential adviser Henri Guaino.

France is headed into a "difficult period" and the government will "do everything that is necessary" to prevent the economy from taking a nosedive, Guaino said.

Economy Minister Christine Lagarde said she nevertheless expected 2009 to end with a jobless rate of 7.1 percent, down from 7.2 percent in the second quarter of 2008.

That figure was the lowest rate in 25 years, capping a steady decline in the unemployment rate that had even allowed the problem to slide off the national radar over the past year.

Opinion polls show purchasing power has replaced unemployment as the number one concern of the average French voter.

Lagarde also Monday unveiled a plan to help French households from falling into a credit trap after the Bank of France said 88,000 people had filed for personal bankruptcy over the past four years, an increase of 70 percent.

Source: AFP - Google.Com

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