Another Vital Step As The Clock Winds Down

While an agreement with the G7 nations to stop the banking crisis has largely failed, the EU has at least vowed to go down swinging with another necessary tactic: a five-year guarantee on interbank lending in the Eurozone.

The declaration says the governments would guarantee "for an interim period and on appropriate commercial terms" new debt issued by banks for up to five years.

"This scheme would be limited in amount, temporary and will be applied under close scrutiny of financial authorities until Dec. 31, 2009," it says.

The leaders of the 15 euro-zone nations held an emergency summit Sunday night in Paris to seek European solutions to the financial crisis engulfing markets worldwide. The meltdown dominated summits around the world this weekend.

The statement also says that one way governments could save banks would include buying big stakes.

Whatever is decided Sunday will then be proposed to the full 27-member European Union at a summit later this week.

British Prime Minister Gordon Brown, who met with France's President Nicolas Sarkozy before the euro summit, said the plan "would involve not only more cash in the financial market but also a recapitalization of our banking system.

"And allied to that -- something that I believe is absolutely crucial -- to begin again the funding of businesses and mortgages with a guarantee given by governments. That can happen and will happen in the next few months," he told reporters.

Again, it's a start. Combined with the nationalization plans of the UK, at least the Euros are taking concrete action. But it should have been done months ago. And without the cooperation in this interbank lending plan from the US and Japan, it most likely is too little, too late. There's little point in guaranteeing bank lending if the banks most likely to fail -- US banks -- are left out in the cold.

There's also the nasty problem of a week before the full EU will vote on the measure. Another week could knock another 20% off world markets...and should the measure not pass, it will be catastrophic. We'll see how it goes in a few hours.

Europe it seems is battening down the hatches in the middle of the perfect storm. Call it prudence, neccessity, or protectionism, most likely it will not be enough to stop the worst of the damage.