Leaders from the eurozone countries hammered out an action plan in a joint response to the unfolding financial crisis at their first ever summit in Paris Sunday.
The following are the key points of what the leaders agreed:
Eurozone leaders pledged to make available for an interim period and on appropriate commercial terms a government guarantee, insurance, or other similar arrangements of new bank debt issuance up to five years in maturity.
The measure is intended to complement the actions taken by the European Central Bank in the interbank market and address funding problems of liquidity constrained solvent banks.
But the leaders said the scheme will be limited in amount and will be applied under close scrutiny of financial authorities until Dec. 31, 2009.
The guarantee should be provided at a price according to normal market conditions and all the financial institutions incorporated and operating in the eurozone countries and subsidiary of foreign institutions with substantial operations will be eligible.
Purchase of Preferred Shares
Eurozone leaders agreed that each member state would provide financial institutions with additional capital resources by acquiring preferred shares or other instruments including non-dilutive ones so as to allow financial institutions to continue to ensure the proper financing of the Eurozone economy.
But financial institutions should be obliged to accept additional restrictions, notably to preclude possible abuse of such arrangements at the expense of non beneficiaries.
Recapitalization of Distressed Banks
Eurozone leaders said their governments remained committed to support the financial system and therefore to avoid the failure of relevant financial institutions, through appropriate means including recapitalization.
In doing so, they will be watchful regarding the interest of taxpayers and ensure that existing shareholders and management bear the due consequences of the intervention.
Emergency recapitalization of a given institution shall be followed by an appropriate restructuring plan.
Relaxation of Accounting Rules
Eurozone leaders urged regulators to take the next steps within the coming days to relax so-called "mark-to-market" accounting rules, which require financial products to be valued at their current price, rather than the purchase price or the price they might fetch later.
The rules were blamed for worsening the financial crisis.
The leaders said that under the current exceptional circumstances, financial and non-financial institutions should be allowed as necessary to value their assets consistently with risk of default assumptions rather than immediate market value which, in illiquid markets, may no longer be appropriate.
(Xinhua News Agency October 13, 2008)