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E.U. Agrees on Financial Crisis Plan of Action – Investors Advised Not to Panic-Sell

13 October 2008 - Features - Editor

While many investors and analysts agree that it is unlikely that the level of anxiety being experienced by global stock markets will decrease in the upcoming week, there are those who believe there is room for a bit of optimism, based on steps being taken by governments and central banks in the United States and across the Atlantic to assist the financial sector. Also, with many being of the opinion that the market in the U.S. will soon bottom out, bargain hunters may start buying, which would give stocks a much needed boost.

Group of Seven finance ministers and central bankers met in Washington on Friday to discuss the global financial crisis, and on Sunday leaders of fifteen Eurozone nations – nations that use the Euro currency - reached an agreement with regard to measures that will be taken to support troubled financial institutions. These measures will form part of a broader plan aimed at easing the global financial crisis, and include the refinancing of banks, guaranteed inter-bank lending and ensuring that troubled banks don’t fail. Moreover, individual depositors’ accounts will be protected and current regulations eased to allow banks more flexibility.

While each European country will take a slightly different approach in putting plans into action, due to the fact that they have differing banking regulations, all measures will be compatible with the agreement reached. European officials have emphasized that managers who have contributed to the current crisis will be held accountable, so this bailout should not be seen as a “gift”. The planned refinancing will be done at market rates, taking into consideration the financial health of each bank. The announcement was made by Nicholas Sarkozy, President of France and current European Union President, who noted that Europe could not have a healthy economy, supporting sustainable growth, unless the financial sector in Europe provides a solid foundation. He expressed his confidence that the measures will achieve their goal of preventing the current financial crisis from turning into an economic crisis.

Prior to the Eurozone summit on Sunday, British Prime Minister, Gordon Brown met with Nicholas Sarkozy, and following this meeting Brown told reporters that common ground has been established to do what needs to be done to stabilize financial markets. Brown reportedly went on to say: “I believe that in the next few days confidence in the banking system will be restored.” Officials from Eurozone member countries are due to present their plan to the European Union on Wednesday at a meeting to be held in Brussels, Belgium. Sarkozy revealed that the European Union will call upon the United States to hold an international summit to address the widening crisis, noting that the worldwide crisis had originated in the United States and an international financial system had to be reformed.

In the meantime, analysts generally agree that now is not the time for investors to panic and sell stocks. Most investors are in the stock market for the long run, and the fact that governmental authorities are taking the crisis very seriously, pulling out all the stops to avoid a recession, should be seen as a ray of light at the end of the very dark tunnel.

 


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