The United States, having expanded its proposed rescue of the financial sector to include foreign banks, has not yet found any other country willing to join the landmark bailout.
The Treasury Department still hopes to marshal a worldwide effort to cleanse the balance sheets of banks. But Europe and Japan have signaled that they are not ready to mount a rescue of the kind being debated here.
Treasury Secretary Henry M. Paulson Jr. continues to solicit support from foreign governments. His department plans to prod them by giving preference to banks from countries that show a willingness to help the American effort, a senior administration official said Monday.
“We expect other countries to do their part, but we’re not insisting their programs be exactly like ours,” said the official, who spoke on condition of anonymity. “We’re certainly not prepared to put ourselves in a position where there’s a free-rider problem.”
Given that the mortgage collapse began here and that most of the distressed debt is held by American banks, specialists said it was not clear that the United States had much leverage in forcing others to take part.
“There’s a view in Europe that this is a U.S.-made problem, and that it should be solved in the U.S.,” said Charles H. Dallara, the managing director of the Institute for International Finance, a group of more than 300 global banks.
Several banks raised concerns after a draft of the rescue plan limited eligibility for selling mortgage-related loans to the Treasury to banks with headquarters in the United States. The language was changed a day later to include foreign banks with significant American operations.
The change did not reflect lobbying pressure, officials said, but Mr. Paulson’s judgment that helping all banks with contacts to American consumers would better stabilize financial markets.
It did not, however, build support for a bailout in Europe, a day after finance ministers and central bankers from the Group of 7 industrialized countries discussed the proposal in a conference call.
While the group pledged in a statement to “enhance international cooperation,” it affirmed that the countries were free to go their own way in responding to the crisis. “None of the other six G-7 members will adopt a similar program to the U.S.,” the German finance minister, Peer Steinbrück, said.
The German chancellor, Angela Merkel, criticized the United States and Britain for opposing German attempts to put greater regulation, or at least reviews, of the financial sector on the international agenda last year, when she was leading the Group of 7.
“Everyone who produces a real product knows what it looks like and what standards it is up to,” Mrs. Merkel said, while traveling in Austria. “One also needs to know with a financial product what’s involved. Otherwise, these sorts of things happen that we then all have to pay for.”
In fact, Germany and Britain have already bailed out some banks that got into trouble because of deteriorating mortgage-related loans, though on a scale much smaller than the proposed American plan.
British officials made clear that they would not create a government fund to buy bad assets, although Alistair Darling, the chancellor of the Exchequer, did promise new rules.
“We are putting in place both here in the U.K. and internationally the tougher financial regulation no one can doubt we need,” Mr. Darling told the governing Labor Party’s annual conference in Manchester. “I will continue to do whatever it takes to maintain financial stability.”
Some economists said Europeans would be forced to take more sweeping action. “Germany has more toxic exposure than any other country,” said Adam S. Posen, the deputy director of the Peterson Institute for International Economics in Washington. “The only one that may stay out of this is France.”
President Nicolas Sarkozy of France, who holds the rotating European Union presidency, has on many occasions complained about the structure of global economic regulation.
On Monday, Christian de Boissieu, chairman of the French prime minister’s council of economic analysis, said: “The U.S. must take charge of the budgetary costs of the crisis. I’m all for trans-Atlantic solidarity, but this doesn’t include financing the bailout.”
The Japanese finance minister, Bunmei Ibuki, said after the Group of 7 statement that he saw no need for Japan to set up an American-style rescue scheme to help its own banks rid themselves of bad assets, Reuters reported.
Apart from a lack of sympathy for a crisis they view as made in America, European governments are also constrained by rules within the 27-nation European Union that limit budget deficits and public debt.
“Europe won’t do anything because they haven’t got the room for maneuver,” said Jeremy Batstone-Carr, an equity strategist with Charles Stanley in London. “They ran themselves into a cul-de-sac.”
A study by the Federal Reserve in August concluded that losses of foreigners holding mortgage-backed securities could be as low as $75 billion, though paper losses would be higher before the market stabilizes.
The Association of German Banks hinted that it would oppose the bailout plan if it gave American rivals a sudden advantage.
“We need to assure that disadvantages for foreign institutions do not arise from the U.S. program,” Manfred Weber, the general manager of the association, said. “It was, after all, American products that created the crisis and that created the contagion effects.”
A spokesman for the association, Heiner Herkenhoff, said the group was still studying the details of the plan, such as they were available, but that it should define eligibility through the nationality of the product. If the mortgage-linked security in question was from the United States, he said, it should be eligible to be purchased, no matter which bank held it.
That appears to conflict with the plan to limit eligibility to foreign banks with significant American operations. Such a rule would include major banks like Deutsche Bank and Commerzbank, but many of Germany’s smaller banks did not meet that criterion, Mr. Herkenhoff said.
Article Courtesy - NYTimes - Mark Landler, Carter Dougherty and Matthew Saltmarsh
http://www.nytimes.com/2008/09/23/business/23global.html?ref=todayspaper
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