If there is one thing Europe’s politicians can agree on, it is the need for co-ordinated action in the face of a global crisis, says Lex. Until then, it is every state for itself. On Sunday, Germany and Denmark guaranteed bank deposits, following similar moves by Ireland and Greece. But unlike last week, the institutions directly concerned did not get a lift. The entire European banking sector was off about 12%. That indicates a growing realisation that scrambling to protect bank deposits is pointless. Not only is it a zero-sum game – one bank’s small capital drain is another’s small top-up – it obscures an underlying reality. Amid the chaos of government-mandated mergers (Lloyds/HBOS), state capital infusions (Dexia) and liquidity provisions (Hypo Real Estate), the market was systematically weeding out the banks most reliant on short-term wholesale funding. What bank investors need from authorities is clarity. A concerted, pan-European drive to inject capital might provide it. At their emergency meeting in Luxembourg on Tuesday, Europe’s ministers could do a lot worse than to advance such mechanisms.

This entry was posted by Gwen Robinson on Tuesday, October 7th, 2008 at 5:38 and is filed under Capital markets. Edit this entry.