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5 Oct, 2008 03:00

Europe's giants united in face of global recession

The leaders of Europe's four biggest economic powers – Britain, France, Germany and Italy – have come to a consensus on how to deal with the global financial meltdown. They have agreed to work together to support financial institutions.

Britain, France, Germany and Italy came to the agreement at a meeting in Paris hosted by the French President Nicolas Sarkozy. EU leaders said they would adapt EU budget rules to deal with the financial crisis.

The British Prime Minister Gordon Brown said liquidity will be assured to maintain economic stability.

German Chancellor Angela Merkel said Europe must draw lessons from the financial crisis.

Earlier Sarkozy had said to deal with the crisis, there needed to be consensus.

“A global problem requires a global response. Today's world, Europe has to display the will to find a solution and that will reassure the entire world – the taxpayers, the savers and the clients of our banks,” the French president said.

But actions from the leaders can’t come soon enough for many European citizens – they’ve been feeling the pinch for a while.

Deauville on the Normandy coast is traditionally a place for the rich and famous to retreat, for people to holiday among those who like to see and be seen. Except these days there’s no one in the cafes, the hotels have vacancies and the shops are doing far from a brisk business.

In nearby Blonville-sur-Mer, it’s bleaker still. Carola has run a hair and beauty salon in this small picturesque town for over 25 years. She says in 10 or 15 years trade has changed greatly – first for the better and now for the worse. She had a full appointment book just a few months ago but now she’s lucky to get three people in a day.

“We may work today and not work tomorrow. It depends on whether there are tourists,” she says.

Sadly, the tourists are not coming to stay in this part of the world. Bad weather has played its part, but everyone it appears is tightening their belt.

The town’s mayor, Jean-Pierre Millet, one of Carola’s clients, admits: “Over the last six months we could feel we were going to have a less good time than before”.

All of which is bad news for Carola and her family – her daughter works in the town in the summer months.

This area relies on agriculture as much as tourism. High oil and gas prices are making it harder for farmers to make ends meet. They are angry that their lives have been so radically affected by financial dealings thousands of miles away.

Economists say worse is still to come for the continent, at least until 2010.

“There are many reasons for this. The U.S.-UK model of regulation was not as effective as the French and the German – or the Russian. Strong regulation is required. It does not matter you are making milk powder or loans,” believes William Wilson, CEO of Vanguard Group.

U.S. bailout plan becomes law

The summit in Paris followed Washington's approval on Friday of a $US 700 billion bailout plan aimed at restoring confidence in the American financial system.

After signing it into law, President Bush remained cautious about the prospects for the economy.

In his weekly radio address, he said the benefits of this package would not all be felt immediately.

The plan involves the government buying huge amounts of debt-ridden assets off stricken banks in the hope of getting credit moving again.

Despite passing the bill, Wall Street ended an intensely volatile week with another sell-off and many economists predict the U.S. cannot avoid falling into recession.