UK wants new Bretton Woods

Governments across the world launched multi-billion-dollar bailouts yesterday to shore up tottering global banks, and Britain called for a new Bretton Woods agreement to reshape the world financial system. Stock markets reacted positively to rescue packages from Britain, Germany, France, Italy and other European governments, with Wall Street joining Europe and Asia to open up over four per cent.

The slew of bank bailouts worth hundreds of billions of dollars were designed to stave off the world's worst financial crisis in nearly 80 years, accompanied by declining global economic growth and the threat of widespread recession. "Only by global action can we fully restore the confidence that is needed and build the international financial order," said British Prime Minister Gordon Brown.

He called on world leaders to create a new "financial architecture" to reflect the global reach of economics and banking, in much the same way that the current international economic system was set up at a conference in Bretton Woods, New Hampshire, in 1944.

In the US, focus was on Morgan Stanley, whose share price plunged 58 per cent in the last week, after Japan's Mitsubishi UFJ Financial Group said yesterday it had invested $9 billion under revised terms.

The deal provided much-needed investment and dashed fears, at least temporarily, that Morgan Stanley would collapse. Britain said it would spend up to £37 billion buying into top UK banks, making the UK government the biggest shareholder in Royal Bank of Scotland and the merged Lloyds TSB/HBOS.

Germany's Cabinet approved a rescue plan worth up to €500 billion for its banks. The package provides €400 billion in bank guarantees and makes a further €100 billion of state funding available.

French President Nicholas Sarkozy announced the government would guarantee bank lending. France will use two entities to help banks, with one offering €320 billion to guarantee bank lending, the other a 40 billion euro fund to take stakes in companies.

Meanwhile, CNBC reported that a comprehensive US financial rescue plan, including interbank lending guarantees, could be announced as soon as today.

The Italian government said it would make more than €20 billion available to shore up banks and Spain pledged similar action, though it saw no need for it as yet.

Japanese Finance Minister Shoichi Nakagawa said his country would consider guaranteeing all bank deposits if necessary, news agency Jiji reported.

In tandem yesterday, European central banks said they would lend out as much US dollar liquidity as commercial banks need in a further bid to tame money market tensions.

In a joint announcement with the US Federal Reserve, the European Central Bank, the Bank of England and the Swiss National Bank said they would meet all bids from commercial banks at a fixed interest rate.

Australia and New Zealand earlier guaranteed all bank deposits and Indonesia raised its guarantee to two billion rupiah ($203,000) while India pledged more liquidity to help financial markets.