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Business

Opinion: Hopes Hinge on Success of the EU's Financial Plan

Great Britain and the EU member states have decided on a synchronized approach to the financial crisis. DW-World's Brussels correspondent, Bernd Riegert, hopes it hasn’t come too late for the economic future of the EU.

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Shocked by stock market losses around the world and the frightening premonition that European banks may become victims in a possible core meltdown of the world's financial systems, the most important politicians in Europe have finally come together to create a collective plan. They realized at last that bank managers and customers need to regain trust in the system – and that the only way to do that is through transparency and a clear message.

The 15 EU member states that comprise the eurozone have, along with Great Britain, simultaneously adopted provisions to help save the financial system from collapse. They've also decided which bills must be paid by the individual governments for its banks.

Did the economic storm grow worse?

Just one week ago, at the first crisis summit in Paris, that insight wasn't possible. The violence created by the economic storm over the last week, however, swept away the concerns -- after a valuable week was already lost.

It's clear now that the EU states want to overcome the crisis. By partially nationalizing the banks and guaranteeing credit lines for banks, they follow in the footsteps of Sweden, which successfully contained a local financial crisis in the 90s with these measures. That lifesaving packet didn't cost the Swedish government much in the long run, as it saved the banks from drowning. But no one can truly predict if that recipe will be successful in the worldwide crisis with all its swift and dramatic twists and turns.

In the short term, the EU states have to mobilize billions. The worst case scenario: trillions in guaranties coming due in the EU alone. This is unprecedented.

Politicians must now make decisions that they've never been faced with before. The states themselves have to borrow money if they want to avoid paying special taxes. Or they have to print new money, which would lead to enormous inflation and greater depreciation for the individual savers. Whichever way one looks at it, if the European Union's plan fails, the European citizenry pays the bill in the long run.

Can a country go broke?

In view of the staggering sums, one has to ask: can a country go broke? It can. Germany has done so twice before -- after both the First and the Second World War. Only currency reforms made new beginnings possible for the country. With the euro, however, those reforms can no longer occur -- the 15 eurozone countries are inseparably bonded.

What's most remarkable about this latest meeting was just how quickly President Sarkozy and Chancellor Merkel seem to have reconciled to fight this issue together. That shows just how great the threat to the European economy actually is.

Now that they've announced their plan, the gaze has shifted and everyone's looking to the stock exchanges to see if the politicians have been able to restore confidence. Will they reward the politicians for their troubles? Ahead of Wednesday's next EU crisis summit, fingers are crossed.

When the storm clouds pass, though, Europe has to show the world that there is uniform regulation in the financial sector. Great Britain, which has particularly held up regulation, has laced up the largest aid package. We can't leave our money to unregulated funds, incompetent bank managers and greedy speculators any longer.

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