Play Live Radio
Next Up:
Available On Air Stations
Watch Live


Europe Unifies Over Bank Deposit Guarantees

The financial crisis now sweeping Europe presents a particular challenge to European unity. Governments worry first about their own national problems, and they're often inclined to address those problems on their own, even if it complicates things for their neighbors.

In the most recent example, some countries guaranteed bank deposits; that action forced other governments to do the same, for fear that if they did not, their depositors would move their accounts. Some governments are also better equipped than others to rescue their banks, raising the prospect of dividing Europe just when united action is needed most.

"We are not living in our own national market," says Joaquin Almunia, the European Commissioner for Economic and Monetary Affairs, who is from Spain. "This is not the real world of today. The situation of financial markets requires an EU response and, building on this response, a global approach."


Safeguarding Bank Deposits

Against that background, the European Union finance ministers who met in Luxembourg on Tuesday were able to reach one agreement: All EU countries now have to insure bank deposits up to 50,000 euros (about $68,000), and countries that want to can insure up to 100,000 euros.

The finance ministers also agreed on "principles" EU governments should follow when providing new capital for their distressed banks. But the action falls short of the financial rescue plan adopted last week in the United States.

The problem for the European Union is that it can't raise taxes or allocate funds the way individual governments can. And the current financial crisis has underlined those limitations. Everyone recognizes it would be more efficient and less costly for Europe to adopt a rescue plan for banks across the continent. But it's not practical.

"In Europe, we simply don't have the institutional arrangements, whereby a central government authority can simply agree to a Europe-wide budget to re-capitalize banks," says Philip Reading, the director for financial stability at Austria's central bank. "So it has to be really done country by country. Yes, and there are cross-border complications. But that's really just one of the facts we have to live with in Europe."


Iceland's Isolation

For those European countries that have not joined the EU, the current financial crisis can be even more frightening. Iceland, which trades freely with Europe but is outside the union, has this week been teetering on the edge of national bankruptcy. On Monday, the country's government had to nationalize the second largest bank in order to keep it from failing.

Prime Minister Geir H. Haarde addressed the nation on Tuesday: "What we are doing here is saving a banking system — saving the domestic banking system — and making sure that it can function properly."

But Iceland has limited reserves to work with; the government is now looking for a $5 billion loan to help it through this crisis. But it's not asking for help from its European neighbors — officials are traveling to Moscow this week to seek help from Russia.

Copyright 2022 NPR. To see more, visit