The global financial virus that incubated in the United States housing sector and infected Wall Street has burst into a full-blown worldwide epidemic as anxious European governments raced this weekend to innoculate national financial systems in a futile effort to stop the spread of a fatal economic disease.
Toxic assets, or illiquid securities, many originated as subprime mortgages and other consumer credit instruments, insured against default, leveraged to maximize returns regardless of loan outcome, and sold in bundles to banks and investors large and small, foreign and domestic, have poisoned international financial markets like melamine in Chinese powdered milk or pet food. They're everywhere.
On Tuesday, the Republic of Ireland's Taoiseach (prime minister) Brian Cowen announced that the government would guarantee all of its nation's bank deposits. The United Kingdom objected to Ireland's flanking maneuver claiming British investors were rushing to place their savings in Irish banks.
The Austrialian online reported on Saturday that the Greek Finance Minister George Alogoskoufis said the banking system was "completely safe and solvent," although he did not promise a blanket guarantee. The Greek cabinet moved quickly to endorse all bank accounts regardless of size, after Greek depositors began hurriedly withdrawing their savings over the weekend.
Now Germany has pledged government intervention to resuscitate ailing financial markets as Der Spiegel online reports "Europe bids adieu to a common financial crisis approach," splintering any hope of consensus on a European Union fix to the global financial wounds now infecting the Continent and European island states.
French President Nicolas Sarkozy supports a common European Central Bank plan to formulate a unified response to the financial virus now threatening the health of European national economies. German Chancellor Angela Merkel disagrees.
Following Ireland, the German government today announced it would guarantee the safety of private banking products in an effort to prevent further deterioration of financial markets in Germany, Europe's largest economy.
AP reports Torsten Albig, a spokesperson for the German Finance Ministry, said Germany is pledging $785 billion (568 billion euros) to guarantee the safety of checking and savings accounts as well as certificates of deposit (CDs).
In spite of a European Union (EU) economic summit yesterday, the leaders of France, Germany, Italy, and the United Kingdom (UK) were unable to reach consensus on an EU accord to stop the escalating viral meltdown across Europe as toxic American assets continued to spread across the Atlantic.
Claude Gueant, a leading advisor to the French and EU President Sarkozy, told the AP, ''What is certain and what the citizens of...Europe must know is that their [financial institutions] won't be left in difficulty."
The failure of the EU to forge a consensus on treating the financial virus underscores the varying degrees of national anxiety European governments face at the spread of international economic contagion.
Aside from Sarkozy's call to unity, new economic reports indicate the French Republic is officially in recession and the president announced emergency initiatives to blunt the impact of the global financial illness, including 20 billion euros in small business assistance and a plan to nationalize 30,000 housing units under construction in France as well as to provide increased access to government-backed home loans.
BBC business editor Robert Peston says, "European governments are as dazed and confused by the mayhem in the global banking system as most of the rest of us."
In addition to Ireland and Germany, Iceland confronts a rapidly mutating financial infection following last week's nationalization of Glitnir, the country's third largest bank. That move by Icelandic authorities prompted credit rating agencies to downgrade Iceland's four primary banking institutions and to cut the credit rating of the government of Iceland.
According to the BBC, negotiations are underway in Iceland between the government and trade union representatives to repatriate foreign-invested pension funds and to accept wage restraints. Iceland's inflation rate stands at 14 percent.
Number 10 Downing Street announced Sunday that Gordon Brown was continuing to shake up the prime minister's cabinet including the appointment of long time political foe, and mastermind of Tony Blair's successful bid for power in the 1990s, Peter Mandelson. A former European trade commissioner, Mandelson was named business secretary.