The Dutch government has made 20 billion euros available immediately for the country's financial institutions, including banks and insurance agencies. Finance Minister Wouter Bos and Central Bank President Nout Welllink announced the fund Thursday evening.
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Dutch Central Bank President Nout Wellink and Finance Minister Wouter Bos making the announcement
Minister Bos says the government has set up the fund in order to prevent further instability in the financial sector, rather than continuing to react after an institution is already in trouble. He said the main problem facing the sector at the moment is the distrust between banks themselves, preventing them from lending money to each other.
"If that no longer happens in a financial system, you're in deep trouble."
The government has established a number of criteria for institutions to apply to the fund. The institution must be sound, it must accept restrictions on executive pay, it must allow government involvement in company strategy, and the government must be able to make a return on its investment in the company.
Bad practices
The fund is not meant to bail out institutions that are facing trouble due to their own bad business practices. Minister Bos told Radio Netherlands:
"The strange thing about the situation now is that distrust of banks towards each other is so big that even healthy companies can become a victim of circumstances, of the volatility in the financial markets. That's got nothing to do with their performance. There's a lot of irrational factors there as well. We want to protect healthy companies that we need in our economy."
The Netherlands is only the latest of a number of countries to set up such funds. Last week, the United States Congress passed a 700-billion-dollar rescue fund, and this week Secretary of the Treasury Henry Paulson is considering buying stakes in certain banks. On Wednesday, the United Kingdom announced it would invest more than 60 billion euros in its biggest banks. Spain announced a 30-billion-euro fund to buy some of its banks assets.
No direct EU coordination
Minister Bos denies there is any direct coordination among EU finance ministers is setting up such funds, in contrast to the unprecedented agreement among seven central banks to cut interest rates on Wednesday. But at last week's meeting in Luxembourg, EU finance ministers did agree on the general principle that governments should help sound institutions weather the crisis. Minister Bos says other EU governments are working setting up similar funds.
On Thursday, the International Monetary Fund said it would set up an emergency finance mechanism to help stem the tide.
Bankrupt Iceland
Iceland is facing the worst problems in Europe. The country is essentially bankrupt.
| Mr Bos and Mr Wellink said that the government would guarantee "one way or another" that savers with deposits up to a maximum of 100,000 euros would get their money back.
Meanwhile The Hague is trying to get Iceland to pay for the first 20,000 euros. Up to now, the government in Reykjavik has refused to comply. A Dutch delegation is on its way to Iceland for talks. |
Thursday's announcement is only the latest in a series of measures the Dutch government has been taking to stabilise financial institutions. Asked if this would be the last, Mr Bos said he would step in whenever it was necessary.
In just a few weeks time, the government has taken on a bigger role in the financial sector than it has had in decades. Finance Minister Bos said:
"The developments that we've seen over the past few months are unprecedented. This is once in a lifetime... I think what we are witnessing now is the failure of an ideology that stresses that markets perform well if governments and regulators keep a large distance. I hope this is the beginning of the revival of the belief that strong markets need strong regulators and strong governments. Amidst all the bad news, maybe that would be good news."
Tags: ABN Amro, credit crisis, Icesave, Nout Wellink, Wouter Bos
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