Europe battles to contain bank crisis as protests hit Wall Street

The European Central Bank is offering new emergency loans to banks to help steady a eurozone financial system being shaken by uncertainty over the government debt crisis.

Fears are increasing over the future of the eurozone as Greece fights to stave off a debt default, Italy’s public finances come under pressure and major European banks falter.

The ECB held interest rates yesterday – some had expected them to be cut – but instead offered an unlimited amount of 12-month and 13-month loans to banks. T

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Bank President Jean-Claude Trichet also said the bank would buy up to 40bn euro (£34.6bn) in covered bonds, a type of security used by banks to raise funding. Many are exposed to losses to Greek debt, which has made borrowing between them increasingly difficult because of fears money might not be repaid.

Meanwhile German Chancellor Angela Merkel was hosting a meeting of the heads of the International Monetary Fund and the World Bank in Berlin, which Mr Trichet and finance ministers from France, Germany and Mexico were attending.

She spoke out in favour of a co-ordinated recapitalisation of Europe’s banking sector on Wednesday amid concern whether Europe’s banks would be able to cope with a Greek sovereign debt default.

Yesterday, the Greek government submitting a bill to parliament suspending thousands of civil servants and cutting public sector salaries as it pushes ahead with harsher austerity measures.

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Its parliament will vote next week on the bill which aims to suspend 30,000 government workers at reduced pay by year’s end and to cut salaries by an additional 2.8bn euro (£2.42bn).

The new cutbacks come on top of salary and pension cuts, as well as a string of tax rises over the past year and a half that have outraged ordinary Greeks trying to cope with 16 per cent unemployment.

A day after a nationwide civil servant strike shut down the government, about 50 finance ministry workers protested peacefully outside the General Accounting office over the salary cuts.

On the island of Crete, however, hundreds of angry farmers took over the District Office to voice their frustration.

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Greece is struggling to meet budget targets to qualify for the next instalment of a 110bn euro (£95bn) package of international bailout loans it has relied on since May 2010 to pay its bills.

Finance Minister Evangelos Venizelos has said it has enough money to pay pensions, salaries and bondholders through mid-November. But the country needs the next batch of loans, worth eight billion (£6.92bn), to avoid bankruptcy.

In the US, the ECB’s announcement was met with disappointment with experts warning the measures may bolster the banks but fail to offer a solution to the sovereign debt crisis.

As investment analysts watched for the impact on trading, outside on Wall Street protesters marked their 20th day of action against economic inequality, bolstered by American unions whose members have joined thousands of protesters in lower Manhattan and smaller demonstrations across the US.

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“We’re here to stop corporate greed,” said Mike Pellegrino, an NYC Transit bus mechanic. “They should pay their fair share of taxes. We’re just working and looking for decent lives for our families.”

The Occupy Wall Street protests started on September 17 with a few dozen demonstrators who tried to pitch tents in front of the New York Stock Exchange. Since then, hundreds have set up camp nearby in Zuccotti Park and have become increasingly organised, printing their own newspaper.

Several Democratic lawmakers have expressed support but some Republican presidential candidates have rebuked them.

“They’re basically saying that somehow the government is supposed to take from those that have succeeded and give to those who want to protest,” Herman Cain said. “That’s not the way America was built.”

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But, holding a sign that said “Enough”, Susan Henoch, 63, of Manhattan, joined protesters for the first time Wednesday. “It’s time for the people to speak up. Nobody’s listening to us, nobody’s representing us. Politics is dead.”