Europe pumping billions of dollars into banking system

LONDON -- European governments on Monday began pumping billions of dollars into their banks, putting more than $2 trillion on the line, in a coordinated effort to prop up struggling institutions, encourage lending and calm stock markets.

At a series of nearly simultaneous afternoon news conferences, European leaders detailed comparable rescue plans to infuse banks with capital if they needed it and to guarantee their debt with taxpayers money.

The pledges by Germany, Britain, France, the Netherlands Spain, Portugal and Austria total 1.7 trillion euros ($2.3 trillion). About 250 billion euros ($341 billion) of the European pledges was earmarked to be spent on recapitalizing banks by buying stakes.

The coordinated announcements were aimed at restoring confidence a banking system that has continued to bleed despite assurances the last 10 days from leaders in separate capitals that they wouldn't let their banks go under.

"The time of everyone acting alone is over," French President Nicolas Sarkozy, who heads the rotating presidency of the European Union, said in Paris.

Monday's announcements demonstrated European governments are starting to take the right steps to stave off a meltdown, says Alistair Milne, associate professor of finance at the Cass Business School at City University London.

"Shoring up the banking system with substantial public funds is absolutely necessary," says Milne, who studies financial systems and advises the Bank of England.

As part of making taxpayer money available to bail the banks out, European governments are requiring they lend to companies and mortgage holders.But Milne questions whether banks will be stingy after making five years of bad loans that led to the current crisis. "Will they lend? I'm not so sure," he says.

"United Europe has pledged more than the U.S.," Sarkozy said during a press conference after an emergency cabinet meeting. And Europe's response does dwarf the Bush administration's $700 billion rescue program.

Milne questions whether the U.S. government needed to do more to shore up U.S. banks.