France to Host European Financial Summit

President of France, Nicolas Sarkozy, is set to host a European financial summit in Paris this coming weekend in an effort to agree to a united European Union response to the financial crisis the U.S. is currently experiencing, which is impacting on global markets. The summit will be attended by financial leaders of France, Italy, Germany and Britain, as well as European Central Bank Governor Jean-Claude Trichet, European Commission President Jose Manuel Barroso and Eurogroup Chairman Jean-Claude Juncker.

With France currently holding the EU presidency, Sarkozy is keen to establish a common position ahead of the expected fallout from the U.S. financial crisis, and ahead of the meeting of G8 finance ministers and central bank governors to be held in Washington next week. Sarkozy also met with the Irish Prime Minister on Wednesday, and was scheduled to meet with Dutch Prime Minister Jan Peter Balkenende on Thursday, with the spreading financial crisis being on the agenda for discussion.

While pledging to protect France’s banks and depositors, President Sarkozy made it clear that there is no truth in the rumors that they are planning to put together a Europe-wide bank protection fund, or a rescue plan based on the much-publicized American $700 billion bailout plan of buying mortgage-related bad debts from the financial sector. He did, however, attempt to calm fears about a credit crunch hitting France, by announcing that a €22 billion loan deal will be put in place to assist small businesses in the country.

The approval by the U.S. Senate of the revised $700 billion bailout plan was welcome news in Europe, especially in light of the negative effect that the rejection of the initial plan had on global stock markets earlier in the week. European commission President Jose Manuel Barroso noted that a global effort was needed to boost confidence in financial markets, with the United States having a major responsibility in this regard.

While there is no clear-cut agreement at this stage as to how the Paris talks should proceed, Karel Lannoo of the Brussels-based Center for European Policy Studies noted that it would be a mistake for individual European countries to deal with their banks in isolation. Statistics reveal that the majority of European banks have a large percentage of their employees outside their home country. With this in mind it is important to reach an agreement on how to deal with any crisis arising in the financial sector anywhere in Europe.