The Irish government was the latest to step in to try calm investors fears. The authorities in Dublin have given a blanket guarantee for the next two years on savings held by Irish banks, covering up to 400 billion euros in liabilities.
All over Europe, bailouts are under way or being considered and similar comments about protecting the stability of banking systems are being made by the region’s politicians.
So how did we get in this mess and is Europe as vulnerable as the US? Economist and former European Commissioner Etienne Davignon said: “The US banks thought they could grow by 10% to 15%, year after year, and so they had to come up with products that were more and more sophisticated, to be able to produce that level of profits. The situation for the European banks wasn’t the same. The European banks got hit because they bought into those US products, but that kind of activity was not a big part of their business. They are more high street banks, commercial banks and private banks. But there are a number of European banks now with insufficient funds, which has undermined public confidence in those banks.”
And that is pulling down the value of the banks’ shares. However, Christian Noyer, a member of the European Central Bank’s governing council sought to reassure investors. He said “There’s no reason to be frightened and to give in to panic,” and he added: “There is no drama ahead of us.”