EU Rejects Bailout

Europe's financial system remains "solid" and does not need a US-style plan to buy up "toxic assets" with public money, European Union officials said Wednesday, Sept 24 amid warnings by Ben Bernanke that global markets were under "extraordinary stress" and threatening an already weak US economy.

At the same time, the European Union's Economic and Monetary Affairs Commissioner Joaquin Almunia said there is "no doubt" the global financial crisis is hurting Europe's real economy, warning growth in both the EU and the euro zone would "remain relatively weak next year."

Surveys showed business confidence weakened in Germany, France and Italy in September, fueling fears the euro zone is sinking into recession as the effects of US financial market turmoil spread.

"Situation in Europe less acute"

"But the situation we face here in Europe is less acute and (EU) member states do not at this point consider that a US-style plan is needed," Almunia said in a speech to the European Parliament.

His words were echoed by Jean-Pierre Jouyet, France's secretary of state for European affairs, who was addressing European lawmakers on behalf of the presidency of the EU. Jouyet said that the financial system in Europe remains stable.

Consequently, the EU "is not planning similar measures as those adopted by the US authorities, such as buying toxic assets," he added.

The head of the International Monetary Fund, Frenchman Dominique Strauss-Kahn said Europe's banks are less in danger than their US counterparts but they should still "prepare for the worst."

In an interview with German daily Frankfurter Allgemeine Zeitung, Strauss-Kahn suggested the crisis was created by America.

"We should not forget that first and foremost this is an American crisis ... Therefore the job of dealing with the crisis should be fulfilled first and foremost by the United States," he said.

Losses mount

The US Congress is currently hotly debating an unprecedented $700billion program to buy up bad mortgage debts and related securities that have brought the banking system and the nation's economy to the brink of ruin.

"Action by Congress is urgently required to stabilize the situation and avert what otherwise could be very serious consequences for our financial markets and for our economy," Bernanke said on the second day of congressional testimony aimed at persuading the US Congress of the need for a vast bailout.

Almunia on Wednesday welcomed the initiative, but said the details of the proposal by US Treasury Secretary Henry Paulson "need to be properly defined - and quickly - if it is to succeed."

The current financial turmoil, which was sparked by last year's subprime mortgage crisis in the United States, has already led to disclosed global losses totaling more than 500 billion dollars -- a sum equivalent to the gross domestic product of a country like Sweden, Almunia noted.

"And unfortunately, the final figure is considered to be larger still," the commissioner added.

However, unlike in the United States, only a handful of European banks have so far required a public bailout - among them Britain's Northern Rock and Germany's IKB. European officials agree that lack of transparency on the financial markets is largely to blame. But some have also pointed their fingers at greedy bankers and company bosses.

New rules

The EU's executive body, the commission, will over the coming weeks unveil a series of proposals aimed at improving the rules that govern financial markets and institutions. These include a set of requirements for credit rating agencies wishing to operate in the EU.

"Delivering improvements in financial market regulation ... is more urgent than ever," Almunia said.

The commissioner also told the European Parliament that EU finance ministers plan to discuss what to do about the excessively high bonuses and severance pay earned by some European CEOs at a meeting scheduled for October 6-7.

FBI investigates banks

Meanwhile, the Federal Bureau of Investigation is examining possible criminal activity at 26 companies including recent bailout recipients Fannie Mae, Freddie Mac and American International Group Inc (AIG), according to media reports.

Major investment bank Lehman Brothers, which declared bankruptcy last week, is also on the list of firms in the FBI's probe of accounting and other possible irregularities, the Bloomberg financial news agency reported late Tuesday, citing a senior law enforcement official.