Europe looking to behave more like the US to solve credit crisis

Peer Steinbrück, Germany’s finance minister, has noted, Europe is not so much seeing a little light at the end of the tunnel but rather the headlights of an oncoming train.

Bail-out discussions are now going on across Europe and there is no consensus on what should be the best solution. Ireland has provided deposit insurance on all monies which in effect semi-nationalizes the banking system on the downside for depositors. The Dutch have bailed out Fortis Bank. There is talk of a new bailout package in Great Britain after taking over Bradford & Bingley. There as been put forth a support program in France. Iceland has been having discussions on helping banks. The Germans have been trying to help restructure Hypo Real Estate though there are complaints about the French program.

There is a new focus on stopping any contagion coming from the United States with direct intervention now being considered as a primary tool. Until recently, the focus has just been on injecting reserves through the ECB.

What a change in just two weeks. ECB chief Jean-Claude Trichet stressed that it was not the role of central banks to rush to the rescue of commercial banks: "We have a responsibility as regards the provision of liquidity, we have no responsibility as regards the solvency issue that might emerge here and there. So, this is clear: we have to face up to all our responsibilities and, like other central banks all over the world, the liquidity responsibility is ours. The solvency responsibility is the responsibility of the executive branches."

The ECB is taking a more passive approach than the Fed, but it seems there is a clear turn toward more aggressive solutions.