PM claims crisis blueprint victory

10:03pm Sunday 12th October 2008

Gordon Brown scored a victory when European leaders backed his blueprint for stemming global financial turmoil.

After a week of chaos on the markets, the eurozone countries endorsed radical plans to guarantee interbank lending and inject capital into major institutions at risk of failure.

The Prime Minister praised the measures - which are based on a £500 billion UK bank rescue package that he announced last week - as the best way of restoring "confidence" to the shattered international system.

The International Monetary Fund also expressed hope that the situation would be stabilised by the EU move, which comes after the US signed up to a similar approach.

However, City traders are braced for more turbulence when banks reveal how much cash they need to stay afloat.

Altogether institutions are expected to ask for around £40 billion in fresh capital in return for shares - with the taxpayer making up whatever cannot be raised from private investors.

RBS is likely to ask the Government to underwrite a £15 billion cash call, while mortgage lender HBOS is requesting up to £10 billion.

Nerves were strained further when Lloyds TSB and HBOS were forced to deny reports that their emergency merger - brokered by Mr Brown and Chancellor Alistair Darling just three weeks ago - had fallen through. Speculation has been growing that the Government's offer to shore up banks by part-nationalising them had undermined the deal.

The promise of action from the 15 eurozone countries came after an emergency summit in Paris. In a break with precedent, Mr Brown attended despite the UK not being part of the single currency, and he took the opportunity to push his vision for co-ordinated global action.

A communique from the eurozone group stated that they would guarantee "for an interim period and on appropriate commercial terms" lending between banks. The scheme will be "limited in amount", and individual nations will decide the level of their support. The loan length will be up to five years.