Business, Finance & Economics

Bailout of Dexia bank amid fears of a deepening debt crisis



The logo of Franco-Belgian bank Dexia is seen at the entrance of an agency, on October 5, 2011 in Tournai.



A three-country agreement has saved Dexia bank from going bust amid fears the troubled bank is only the first of the European banks to fall victim to the sovereign debt crisis, Sky News reports.

France, Belgium and Luxembourg have agreed on a bailout plan for Dexia to save it from bankruptcy, BBC reports.

The Belgian government will buy the bank's division in Belgium for 4bn euros ($5.4 billion) and Luxembourg's finance minister said a Qatari investment group was prepared to buy the bank's Luxembourg unit, the AFP news agency reported.

As part of the solution, 90bn euros of the bank's assets will be guaranteed for up to 10 years by the French, Belgian and Luxembourg governments, Sky News reports.

It is the first bailout of a bank - which will see it fully nationalised - since 2008, Sky News reports.

The bailout comes as French president Nicolas Sarkozy and the German Chancellor Angela Merkel met in Berlin Sunday to discuss ways to recapitalise European banks exposed to public debt.

The French President and German Chancellor have agreed a package of measures to help stabilise the eurozone, Sky News reports.

Angela Merkel said she and Nicolas Sarkozy "are determined to do the necessary to ensure the recapitalisation of Europe's banks" but did not go into the details of the agreement.

The BBC reports that the talks come after Sarkozy met with International Monetary Fund director Christine Lagarde in Paris.

French banks in particular are considered to be over-exposed to the public debts of Greece, Italy and Spain.

France and Germany, meanwhile, have been divided over how to handle the debt crisis.

Merkel has said banks should turn to investors before appealing to European nations for funds. But France wants national governments to pay before being allowed access to the euro zone’s emergency rescue fund.

(Read more on GlobalPost: Fitch downgrades Italy and Spain)

The Berlin summit comes as France and Belgium continue efforts to reach a deal over the break-up of Dexia, the first bank to fall victim to the euro zone debt crisis.

Belgian caretaker Prime Minister Yves Leterme said that final negotiations would take place in Brussels, reported Reuters.

Trading in the Franco-Belgian bank's shares was suspended on Thursday after they lost 42 percent, and Dexia was forced to seek government help.

France and Belgium are under pressure to reach a deal on splitting the costs ahead of a meeting Sunday of Dexia's board of directors.

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