News / Europe

Belgium Buys Subsidiary of Financially Troubled Dexia Bank

The logo of Belgian-French financial services group Dexia is seen on their building in the business district of La Defense, near Paris, October 7, 2011.
The logo of Belgian-French financial services group Dexia is seen on their building in the business district of La Defense, near Paris, October 7, 2011.

Belgium decided Monday to buy a subsidiary of the financially troubled Dexia bank, the first victim of new European worries about the spread of Greece's debt crisis.

The Belgian government said it is paying $5.4 billion to buy the national subsidiary of Dexia. The French, Luxembourg and Belgian governments said they would provide an additional $121 billion in funding guarantees for the bank for up to 10 years.

The Belgian nationalization of Dexia came as members of Qatar's royal family said they would pay $1.4 billion to buy the bank's Luxembourg division. Dexia's board is negotiating with two French banks to resolve further financing difficulties for local authorities in France.

Dexia was hurt by holding too much governmental debt, especially from Greece, but also from Italy and struggling local governments in the United States. Other banks increasingly were reluctant to loan money to Dexia, worried that it would collapse and they would not be repaid. Belgian officials said the infusion of cash and loan guarantees insures that customers' deposits at Dexia are secure.

Meanwhile, Greece said Monday it has concluded talks with international creditors who have been reviewing the country's austerity budget measures. Greece needs their approval as it seeks release of a new round of financing from its $159 billion bailout from last year. Greek Finance Minister Evangelos Venizelos said he expects the $11 billion segment to be released before the country runs out of cash next month so it can avoid a default on its international obligations.

European leaders have been hard-pressed to stay a step ahead of the spreading debt contagion, which has worried investors across the globe.

On Sunday, French President Nicolas Sarkozy and German Chancellor Angela Merkel met in Berlin and promised to soon produce a "global, lasting and quick response" to the European debt crisis.

The two leaders declined to give any details of their plans, which Merkel says are still a work in progress. But Sarkozy says they include adding new funding for banks faced with losses. They say the plan will be ready when France hosts a summit of leaders from 20 industrialized and developing economies early next month.

Ireland and Portugal also have needed bailouts, and there are fears Italy and Spain, with Europe's third and fourth largest economies, could be next.

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