Europe agrees to help banks impact positive

Monday 2:20 a.m.October 13, 2008

The European union leadership has agreed to inject liquidity in exchange for share ownership to those banks that desire it . It also   has agreed to guarantee inter bank lending.The result so far is to send very positive signals to the credit markets and in turn the early reports from the Asian markets that are open and the futures on the European and New York markets are positive. We shall see later today whether this holds up as the days trading proceeds. Britain has made it clear that it is taking equity positions in its leading banks in return for recapitalizing them. Some 37 billion pounds is being invested in what can best be described as temporary partial nationalization of part of the banking sector. The US is in the process of revamping its rescue package and is considering but not yet decided to guarantee inter bank loans.The total deficit spending in the US alone will be of the order of 12-14 %of the GDP depending upon the precise range of spending and rescue proposals that are implemented. This is a substantial stimulus along side the restoration of liquidity and the gradual thawing of the credit markets. Further down the path this will have a very positive impact particularly if fiscal co-ordination follows monetary and financial market co-ordination.