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Financial Meltdown Worsens as Recession Hits Euro Zone

As US bank Washington Mutual goes belly-up, Ireland has become the first euro zone country to officially slide into recession. Laissez-faire is done with, said French and current EU President Nicolas Sarkozy.

The US bank Washington Mutual

Washington Mutual became the latest victim of the US banking crisis

In what was officially the largest-ever US bank failure, Washington Mutual's business has been shut down after the bank collapsed, with customers pulling more than $16 billion (10.9 billion euros) from their accounts.

Those accounts have been gobbled up by JP Morgan, thus ensuring that the depositors won't lose their money.

A dollar bill and a euro coin

The US economy looks down and out, but the euro zone is not faring much better

In Washington, just hours after Congress appeared on the verge of agreement on an emergency rescue plan for the US financial system, a historic White House meeting turned into a bout of bickering and broke up with no formal consensus on the controversial proposal.

President George W. Bush had invited both presidential candidates, Barak Obama and John McCain, to take part in an effort to find a consensus on the $700-billion plan to prop up the ailing financial system.

Republicans and Democrats, however, are struggling to find middle ground with the former at odds over what would amount to government ownership of collapsed companies, anathema to the center-right advocates of free markets.

Ireland officially falls into recession

While the bickering goes on in Washington, the fallout is continuing to be felt in Europe. Ireland has become the first member of the 15-member euro zone to fall into recession as a result of the US financial crisis.

As in other countries, the domestic property market has taken a hammering and pushed the country into its first recession in 25 years. Germany, Britain, France and Italy are also perilously close to experiencing the same fate.

"We expect that Italy and Germany will also record contractions in their third quarter Gross Domestic Product, following contractions in the second quarter," said Barclays capital analyst Julian Callow, as reported by AFP news agency.

A recession is officially defined as two consecutive quarters of no GDP growth.

Sarkozy: Laissez-faire is finished

With European leaders scrambling to fend off further disaster, French President Nicolas Sarkozy has joined the chorus of demands for an overhaul of the financial system.

French President Nicolas Sarkozy addressing the UN General Assembly

French President Nicolas Sarkozy told the UN he wanted an emergency summit

Speaking in Toulon on Thursday, Sept. 25, Sarkozy said the economic turmoil provoked by crises in the American sub-prime and finance markets had put an end to the free-market economy.

"Laissez-faire is finished, the all-powerful market that is always right, that's finished," he said in a widely anticipated speech, his first in France on the economic crisis. He called for new rules and regulations and a wide-ranging restructuring of the entire global banking system, saying that the crisis has laid bare serious flaws in the international banking network.

With France currently occupying the rotating presidency of the EU, Sarkozy said he would "propose initiatives" on these issues at the next EU summit on Oct. 15.

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