Oct. 5 - Germany and France take the lead in standing behind European banks, amid fears that the problems of struggling Franco/Belgian bank Dexia could contaminate other institutions. Kirsty Basset reports.
TV AND WEB RESTRICTIONS~**NONE** The French and Belgium governments are working on a rescue plan but that didn't stop worried Dexia customers overloading the bank's helpline. Some depositors withdrew their funds although there were no queues at branches. The Franco/Belgian bank needs support for the second time in three years partly because of its exposure to Greece. One French politician said he fears Dexia's problems could contaminate other banks. But the Governor of the Bank of France told Europe 1 radio most French banks were strong enough. (SOUNDBITE) (French) GOVERNOR OF THE BANK OF FRANCE, CHRISTIAN NOYER SAYING: "The French banks I am responsible for are very healthy. I maintain that. Honestly, I am a lot less concerned for the French banks than I am for the American banks." Noyer said Dexia's problems were linked to bad management and he promised to guarantee customer deposits. Germany is also backing Europe's banks - German Chancellor Angela Merkel. (SOUNDBITE)(German) GERMAN CHANCELLOR ANGELA MERKEL SAYING: "The German government -- as the finance minister has made very clear in the last two days - stands ready to implement such a capitalisation of the banks if it is needed. We need criteria, we are under pressure and I think we need to make a decision quickly. If we need to discuss this at the European summit we are certainly prepared to do that." Her comments came as the International Monetary Fund revealed how much it thinks Europe's banks need to recapitalise in order to restore investor confidence. Antonio Borges is Director of the IMF's European department. (SOUNDBITE)(English) DIRECTOR OF THE IMF'S EUROPEAN DEPARTMENT ANTONIO BORGES GIVING PRESS CONFERENCE SAYING: "We are talking about figures of between 100 and 200 billion euros, which in our view is very, very small compared to the size of the European capital markets and even compared to the resources of for example of the new, enhanced EFSF, which might from now on might be allowed to contribute to the capitalisation of the banking sector." Borges said investors had reason to worry about a possible recession. But he denied that austerity programmes were to blame for slowing economies. The cause, he said, was the loss of confidence stemming from weak banks and the region's huge debts. Banks stocks surged on Wednesday. The rally followed a decision by European finance ministers to try and recapitalise the sector as a Greek default grows more likely. Kirsty Basset, Reuters