European Economy. Quarterly report on the euro area 2008.

Abstract

Financial markets remain under serious stress and the turmoil is now impacting the real economy. From the outset, the EU has taken decisive action to manage the financial side of the crisis. Governments, the Commission and the ECB have been working closely together to contain the turmoil, protect savings and maintain a flow of credit for businesses and households. The European Central Bank repeatedly injected liquidity into markets and in consecutive steps cut its base rate by a cumulated 175 basis points. The October agreement by Member States on an EU rescue package for banks paved the way for coordinated national responses. Most Member States have either implemented or are in the process of implementing comprehensive rescue packages with a view to restore market confidence. On top of increased access to liquidity from central banks, the national plans comprise various elements, including state-backed guarantees for bank liabilities, and capital injections into financial institutions. Moreover, almost all Member States have announced an increase in the level of minimum deposit insurance and committed to speed up the disbursement of refund in case of a default.