Oct. 12th, 2008

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European Leaders Agree To Inject Cash Into Banks

Taking their cue from a rescue plan announced last week by Britain, the European countries led by Germany and France pledged to take equity stakes in distressed banks and vowed to guarantee bank lending for periods up to five years.

This is what Krugman et al. have been saying for the last four weeks needs to be done. U.S. gov't is only partially there, announcing it'll take equity stakes but insisting that as a stockholder it'll be nonvoting and so far not guaranteeing bank lending. (We have a credit freeze because banks are unwilling to lend to each other.)

A question the news story leaves unanswered is how a small country with big multinationally involved banks can afford to inject the capital. Germany is not willing to contribute to a common fund, but maybe some other idea has been cooked up.

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Frank Kogan

July 2025

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