French President Nicolas Sarkozy has called an emergency finance summit in Paris Saturday. Washington has approved its historic $700-billion bailout package, but EU leaders are divided over what action to take.
EU leaders are not at one over their response to global credit crunch
Disagreements, however, center around a plan, reportedly favored by France, to set up a 300 billion euro ($415 billion) fund to help troubled European financial institutions.
In particular, this has provoked tensions between France and Germany, who have diverging views of how the European Union should function. Berlin is traditionally more opposed to a centralized approach, especially in monetary affairs.
Britain, along with Germany, has been reluctant to commit taxpayers' money to a Europe-managed fund and advocates a case-by-case approach to rescuing financial institutions.
Things aren't quite as cozy between Germany and France at the moment
Saturday's mini-summit was called by Sarkozy, who wants to arrive at a common position on the finance crisis ahead of the Oct. 15 EU summit and a G8 meeting to be held in November in the United States.
Leaders of the four EU members of the G8 group of leading industrial nations will be present. Joining Sarkozy in Paris will be German Chancellor Angela Merkel, British Prime Minister Gordon Brown and Italian Prime Minister Silvio Berlusconi, along with European Commission head Jose Manuel Barroso, European Central Bank president Jean-Claude Trichet and the head of the Eurogroup, Jean-Claude Juncker.
The French president will host talks with International Monetary Fund head Dominique Strauss-Kahn on Saturday ahead of the mini-summit. France sees the global financial upheavals sparked by the US banking crisis as an opportunity to push for more state regulation of the economy.
Strauss-Kahn, a former French finance minister, also argued last week that the IMF needed to tighten up its control over financial markets in the wake of the crisis.
Call for unity
French Prime Minister Francois Fillon urged Europe on Friday, Oct. 3, to find a united response to the credit crunch ahead of Saturday's meeting.
"The world is on the edge of the abyss because of an irresponsible system," Fillon told members of France's governing conservative UMP party.
The plan is said to be a brainchild of the Dutch Prime Minister
"Nicolas Sarkozy will reiterate that the only way out of this crisis will be a collective one. He will propose that Europe make its banking systems secure, unfreeze credit and coordinate its economic and monetary strategy," he added.
But European Parliament president Hans-Gert Poettering of Germany urged leaders to remember that the weekend mini-summit could only make proposals on how to deal with the global financial crisis.
"I want to be clear: The meeting can only be for proposals. They can't decide for the EU. Decisions have to be taken by all 27 (member) countries and by the European institutions," he told an economic conference in Madrid. Finance ministers from all member states are due to meet on Monday in Luxembourg.
Supporters and detractors of the bailout fund
According to various media reports, the idea of a bailout fund was first suggested to Sarkozy by Dutch Prime Minister Jan Peter Balkenende during a recent meeting, and it was immediately seconded by OECD head Angel Gurria.
Speaking in Strasbourg on Wednesday, Gurria said, "We have already seen the first troubled European banks being rescued in the United Kingdom, Belgium, the Netherlands and Germany.
"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. The piecemeal approach may not work in Europe."
The proposal was also supported by one of Germany's most influential financiers, Deutsche Bank head Josef Ackermann, who said that "such a plan must be available in the drawer, to be prepared for a worst-case scenario."
However, the idea was quickly rejected by Berlin, with a spokesman for Merkel saying, "I don't know anyone at the moment who is seriously proposing such a European model."
Peer Steinbrueck doesn't want to let go of the purse strings
And a spokesman for Finance Minister Peter Steinbrueck said, "The federal government doesn't think such plans are good. Tailored solutions are the better way."
The British prime minister's spokesman said that while the financial crisis had a "European dimension," individual countries wanted to come up with their own solution because it is their taxpayers' money that is at risk.
But the danger of a nationalistic approach to the crisis was made clear earlier in the week, when the Irish government decided unilaterally to guarantee all deposits in Irish-owned banks for the next two years.
London has been forced to respond after a flight of capital from British lenders to Irish banks. On Friday, Britain increased the compensation limit for banks savings to 50,000 pounds (64,000 euros, $88,500) in an effort to make its own banks more attractive.