Britain launched a huge scheme on Thursday to insure "toxic assets" that have brought many banks to their knees as Royal Bank of Scotland reported the biggest loss in British history.
Increased unemployment in Germany, Europe's biggest economy, and a tightening of credit further reflected a grim picture across the continent. In the United States, investors looked to President Barack Obama's first budget proposal, due to be sent to Congress later in the day. The British scheme, which could end up insuring more than 500 billion pounds' ($712 billion) worth of risky assets, marked the latest drive by world governments to drag their economies out of crisis.
The Asset Protection Scheme will offer protection to eligible banks against huge losses, and aims to get them lending again as British business and consumers cry out for credit.
"The object of this is to provide that certainty and that confidence that will maintain lending and that's essential for each and every one of us," said finance minister Alistair Darling.
Many banks around the world took on assets during the economic boom at huge cost, only to find they had little value as the U.S. property market collapsed, setting off a chain of events which has ravaged economies across the globe.
Darling described the assets covered by the scheme in measured terms. "These are things like commercial loans or mortgages which are worth less now that perhaps they were a few months ago which we hope will increase in value as we get through this recession," he said.
Royal Bank of Scotland confirmed on Thursday how much it had suffered in the disaster, reporting a 24.1 billion pound loss for 2008, the biggest in UK corporate history.
It also said it planned to place 325 billion pounds of assets in the state insurance scheme. "We are charting a path to standalone strength and with it the goal of justifying the support of the UK government and all our shareholders," RBS chief executive Stephen Hester said in a statement.
Martin Slaney, head of derivatives at GFT, said the net loss was less than some had feared but doubts remained on how long the bank could keep any semblance of independence.
"There is still a sense with RBS that nationalisation is inevitable. This may stem the decay but the prospect of 100 percent state ownership is still with us," Slaney said.
Darling said the government's economic interest in RBS would soon be around 80 percent. But he stressed that he wanted all banks with state holdings, following a series of bailouts, to return to full private ownership at some point.
"Our ultimate aim must be to return RBS and indeed any other bank in which we've got a shareholding back into commercial operation," he said.
News that former RBS chief executive Fred Goodwin would receive a 650,000 pound pension has aroused anger in Britain, and Darling said he had asked him to forgo it.
LITTLE HOPE
Economic data on Thursday offered little hope than Europe can recover soon from recession. German unemployment rose in February by 40,000 month-on-month in seasonally adjusted terms, the Labour Office confirmed.
That took the adjusted jobless total to 3.311 million, giving an unemployment rate of 7.9 percent.
The rise was a little less than most economists' forecasts. But Philipp Jaeger of DZ-Bank, was gloomy. "There is a change of trend towards the worse and we will see further deterioration on the job market. The number of unemployed could even rise above five million over a longer time period," he said.
European Central Bank data showed how the flow of credit is slowing across Europe. Money supply growth in the euro zone slowed more than expected in January, while annual growth of loans to the private sector also eased, the ECB reported.
"The very sharp slowdown in loans to the private sector is a clear indication that tightening credit conditions are impacting more on more on both companies and individuals, which has serious repercussions for euro zone economic activity and is of major concern for the ECB," said Howard Archer at IHS Global Insight.
On a more positive note, annual inflation in three German states eased in February, pointing to a drop in price pressures across the euro zone. This should allow the ECB to make a widely expected interest rate cut from 2.0 percent to 1.5 percent when it meets next week.
In the U.S., all eyes will be on Obama's first budget proposal bracing for fights over how best to heal the economy, create a new healthcare system and still cut out-of-control deficits.
The United States has already launched a "stress test" programme to judge banks' resistance to a possible deeper recession.
