Perhaps it's appropriate that it is on Columbus Day that the Old World appears to be getting into gear. All I can say is wow. What a day in Europe.
In what can only be described as a veritable financial earthquake, the UK nationized its main banks, the Eurozone unveiled a massive bank bailout plan, and even Poland said it will have a plan in place to inject funds into banks. Across Europe, banks are going to be partly nationalized. And the US could shortly follow suit. Who would have thought they'd see the day?
After much angst over the past week over the EU's inability to come up with a coordinated plan, this morning an emergency summit of the 15 countries in the eurozone (the countries that use the euro), the governments afreed to offer guarantees for the troubled banks, commiting the national goverments to use public money to make sure no European bank is allowed to fail. The market responded well to the news. European trading closed up by the end of the day, and the euro jumped 1.1 percent against the dollar.
British Prime Minister Gordon Brown even stopped by to join the leaders in a show of good fath, even though the UK isn't on the euro. But even before he went, Brown had outlined specifics this morning on the plan for the UK to use public funds to bail out the ailing banks, as announced last week. This morning it was revealed that the UK would undertake a partial nationalization of the British banking system, with the government taking a majority share in Royal Bank of Scotland and Halifax Bank. Continental Europe will soon follow suit. This afternoon each government, from France to Germany to Portugal to the Netherlands, all announced the massive amounts of money they will each make available to buy stakes in their banks. It's a truly stunning development.
And just now Polish government officials said that that country is also coming up with a plan to partially nationalize its banks through funding. This may be an indication that tomorrow, when all 27 EU countries meet in Brussels, the non-Eurozone EU countries will sign on to the plan.
So is this the unified European plan that the markets wanted? Sarkozy was presenting it that way this morning, saying, "This is indeed a common action that we are taking." But the agreement is only a framework, with each government taking steps at a national level according to its own interpretation of what should be done. So far, for today at least, this seems to have been enough coordination to calm the markets, both in the US and Europe. But will it last?
Apparently the US Fed will meet tomorow and iron out the final arrangements for bank funding, and it is thought they may come up with a plan similiar to that announced today in Europe, where the US government would take controlling stakes in American banks. It is expected that if the 27 EU countries do reach a consensus tomorrow on the bank partial nationalization plan, they will also tomorrow recomend that the US follow suit. If the US follows the recomendation, it will be truly amazing. To think that this week the US could follow Europe's lead toward economic nationalization shows just how rapidly things are changing before out eyes. But right now it's anybody's guess what the US will announce tomorrow.
The long and short of all this? I am now a banking customer of the UK government. Amazing.