EU welcomes US bailout for financial markets

The European Commission on Monday welcomed the Bush administration's $700 billion bailout proposal to rescue the nation's financial institutions.

EU spokesman Johannes Laitenberger said the European Union executive "welcomes U.S. action to stabilize the financial system" and would continue to follow the situation closely and attentively. He refused to comment on the details of the plan, which still needs the backing of the U.S. Congress.

The U.S. package aims to calm a storm that has hit financial markets in recent weeks — bringing down investment bank Lehman Brothers Holdings Inc. and forcing government rescues for insurer American International Group Inc. and mortgage financiers Fannie Mae and Freddie Mac.

It plans to tackle the root of the trouble — billions of dollars of bad mortgage debt on the books of major financial companies — by using taxpayer money to buy up the bad loans and allow these companies to resume normal lending operations.

This debt has triggered the worst credit crisis in decades, causing credit markets to essentially freeze up last week as banks were afraid to lend to one another, despite the efforts by major central banks around the world to pump billions of dollars of reserves into the financial system.

The U.S. Ambassador to the European Union, Kristen Silverberg, said the U.S. Treasury and the Federal Reserve were "in close consultations with their European counterparts" and had also held talks with Russian officials on the crisis.

She told reporters that financial watchdogs want to make sure that new rules "make sense" and were keen to ensure that "issuers on either side of the Atlantic have access to each others capital markets."

"We don't end up with wildly divergent requirements for companies which are increasingly Internet-joined business internationally," she said.

Also Monday, EU financial supervisors said they were closely watching how markets are working and are jointly considering what more they can do to strengthen confidence and protect investors.

The Committee of European Securities Regulators, known as CESR, said it had coordinated actions by several countries to curb "naked short-selling" that can swiftly drive down the share prices of companies.

"Naked short selling" entails selling a stock short without first borrowing the shares, as is done in a conventional short sale.

Since Thursday, several EU nations have brought in temporary three- or four-month bans on selling borrowed shares in troubled companies in the hope of buying them back cheaper and pocketing the difference: Britain, Germany, the Netherlands and Belgium. Spain and Luxembourg have also introduced indefinite bans.

Politicians have blamed short selling for playing a key role in the recent collapse of large financial institutions such as Wall Street's Lehman Brothers and Britain's HBOS PLC, which was taken over last week by rival bank Lloyds TSB Group PLC. But many traders say the practice has a role to play in the market.

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Associated Press writer Paul Ames contributed to this report.