He writes, "The US is a continental economy; it can find $700bn for its toxic debts. The UK is a medium-sized economy - but has giant banks. Royal Bank of Scotland has 2 trillion euros of assets; HSBC 1.6tn; Barclays 1.5tn; and Lloyds/TSB/HBOS 1.4tn. Together those 6.5tn euros of assets are four times Britain's GDP."

He adds, "Britain will need its own Paulson plan to respond, but has not got the financial firepower. The only viable British Paulson plan - bar a £500bn-plus international loan - may require us to join the euro to win the support of the whole of the European economy and European Central Bank as part of a pan-EU initiative to create 'good banks' for Europe."

Banks are petrified of lending to one another for more than one day, requiring central banks to flood their coffers with the money they need to stay in business. After yesterday's part-nationalisation of Belgo-Dutch banking giant Fortis and the nationalisation of the UK's Bradford & Bingley, Belgium-based Dexia, the biggest provider of lending to local governments in the world, could be the next financial institution to be rescued by taxpayers.

In an email from Belgian Prime Minister Yves Leterme, the country's federal government reached an agreement. With Belgium's regional assemblies to jointly support the bank, Bloomberg News reported. Even French President Nicolas Sarkozy has joined the rescue operation, despite the bank being headquartered in Belgium, issuing directions that the state investment body Caisse Des Depots offer Dexia funds.

Elsewhere, the German government backed by a series of private banks bailed out collapsing mortgage lender Hypo Real Estate reportedly to the tune of €35 billion, according to the German Ministry of Finance. The list of nationalisations is rapidly growing, with Iceland - not an EU member state - also nationalising the country's third largest bank, Glitner. The government has taken out a 75 percent stake in the firm in return for €600 million.

He assured that if the Treaty is unratified before the Conservatives take office then, "OF COURSE, WE WOULD HOLD A REFERENDUM." He then went further and suggested that if the Conservatives inherited a ratified Lisbon Treaty, they could still hold a referendum because without a public vote, the document will 'lack democratic legitimacy'.

He said, "We haven't made the decision. I certainly haven't ruled that out." It is reported that the wording has also yet to be decided, but the aim would be to give the new Conservative government a mandate to go to Brussels demanding a looser relationship with the EU.

William Hague, the shadow foreign secretary, is considering a special national ballot to help to give him the authority to renegotiate Britain's relationship with Europe. In a wide-ranging interview with The Sunday Times, Hague said: "THE INTEGRATION OF EUROPE WILL HAVE GONE TOO FAR. We won't let matters rest."

In a speech yesterday, Nicolas Sarkozy launched what Le Figaro describes as a "real crusade" against "speculators" and the "excesses of financial capitalism." He laid out a set of proposals including more regulation and control of banking activities and capping of the pay of the leaders of financial organisations. HE SAID "SELF REGULATION IS FINISHED."

German Finance Minister Peer Steinbruck said the crisis marks the beginning of a multi-polar world, where the US is no longer a superpower. HE BLAMED THE "IRRESPONSIBLE" POLICIES OF THE US FOR THE CRISIS, CLAIMING THEY WERE "SIMPLISTIC" AND "DANGEROUS". Steinbruck yesterday outlined a series of "draconian" financial regulations, according to Eurointelligence. The article reports that he wants to make short-selling illegal, and to impose legislation forcing banks to take on 20% of the credit risk when selling on credit for securitisation. The FT notes that other proposals included a crackdown on variable pay for bankers. France and Germany will set up a working group to consider tougher regulation.

In a landmark book called "The Trouble with Textbooks," Dr. Gary A. Tobin and Dennis R. Ybarra show how millions of American schoolchildren are taught anti-Semitic versions of Jewish history and faith, particularly in relation to Christianity and Islam, in passages that often amount to sheer libel.

Among the teachings that were found in American textbooks are the following distortions:

• Jesus was a "Palestinian", not a Jew.

• The Arab nations never attacked Israel. Arab-Israeli wars "just broke out," or Israel started them.

• Arabs nations want peace but Israel does not.

• Israel expelled all Palestinian refugees.

• Israel put the Palestinians in refugee camps in Arab lands, not Arab governments.

• Palestinian terrorism is nonexistent or minimal.

• Israel is not a victim of terrorism or terrorism against Israel is justified.

• U.S. support of Israel causes terrorism, including 9/11.

• The intifadas were children's revolts not involving adults or terrorism.

• Jews and Judaism are legalistic. Jews are only about the letter of the law and ignore its spirit.

Tobin said that these alarming distortions and inaccuracies were as much a product of "amateurish scholarship" as any anti-Semitic bias, but the effect, he noted, remains the same: "If the president of Iran wants to blast Israel at the U.N., he can use American textbooks to do so."

In moves described by the Euobserver as a "litmus test" for Europe's "security ambitions" France is testing the waters with a view to longer term plans to create two rapid reaction units and two larger reconstruction missions, SEEN AS AN ATTEMPT TO CHALLENGE ANGLO-AMERICAN DOMINATION OF NATO.

At informal talks in the French Channel resort of Deauville European defence ministers will study ways to better use the 27 nations' military resources - an early litmus test of the EU's willingness to live up to its security ambitions. The EU aims, by 2018, to be able to deploy if needed some 60,000 troops with air and naval support within 60 days, and for the mission to remain in operation for a year.

But as bank shares gyrate and the livelihoods of millions of people are at stake, the country I have loved for so long looks as parochial and myopic as a banana republic. Its politicians would apparently rather impoverish their own people - and ours - than risk their careers at the polls in five weeks' time by being seen to "bail out greed". THE GLOBAL FINANCIAL SYSTEM IS OUT OF CONTROL, AND IN WASHINGTON NO ONE IS IN CHARGE. No one has been in charge since Republicans and Democrats voted down the bank bailout Bill at 7.10pm on Monday night.

THIS WOEFUL ABSENCE OF LEADERSHIP IS A HAMMER BLOW TO AMERICA'S STATUS AS A GREAT POWER. I do not mean that America has ceded its economic dominance to Asia quite yet. China and India are still too dependent on the American consumer and foreign investment for that to happen. But America's reputation may not recover from having forfeited leadership at the time when its leadership is most desperately needed to restore confidence in a panicking world.

This is not the pragmatic, courageous America we thought we knew. This is an America which, offered a chance to save the world Hollywood-style, prefers to rerun the show that turned the Wall Street Crash into the Great Depression. The Bill was voted down by Congressmen and women in marginal seats who are fixated not on their place in history but on the November election. Everyone hopes that they will be bribed out of it on Thursday: that is what is keeping stock markets up. But I am not so sure.

The most flattering reading of the turmoil in Congress this week has been that this is democracy in action. Personally, I have never felt more attracted to benign dictatorship. But the reality is that politicians who are using their taxpayers as an excuse to do nothing are condemning those same taxpayers to suffer: savers, homeowners, employees and entrepreneurs struggling to make a go of the businesses that will create the wealth the world needs.

It should come as a desperate irony to every American that the only grown-ups today are in the capitals of Europe. EUROPEANS ARE FORGING THE WAY AHEAD AS WASHINGTON'S CHILDISH SULK BRINGS AMERICA TO A NEW NADIR.

The shortage began two weeks ago in Atlanta, the region's largest city, when oil refineries on the Gulf Coast were shut down by hurricanes Gustav and Ike earlier this month. Parts of north Georgia, western North Carolina and parts of Tennessee were also affected. The effects on motorists have been dramatic. Most service stations in Atlanta are out of gas, with plastic bags placed over the pumps or signs saying "out".

As a result, drivers are cruising the city hunting for gas - often with a fuel meter needle hovering close to empty. When they find gas, it's often above $4 a gallon. In an effort to bridge the gap in the supply chain, Georgia Gov. Sonny Perdue asked President George W. Bush on Monday to consider releasing crude oil from the strategic petroleum reserve to refineries in the Gulf.

This came on top of a decision by the U.S. Environmental Protection Agency last week to loosen restrictions on fuel sulfur content as another measure aimed at increasing supply. But the shortage was also driving up demand as nervous motorists buy more gas than usual.

The plan needs support in the Senate and House of Representatives, which rejected a similar bill on Monday. Senate Democrat Harry Reid said he hoped a strong show of bipartisanship would "spark the House to do the same". US presidential hopefuls John McCain and Barack Obama are returning from the campaign trail for the vote, which is due to begin late on Wednesday.

To get through the Senate, the bill will require the backing by 60 of the 100 senators. It would then return to the House of Representatives on Thursday. Some members of Congress continue to press for more fundamental changes to the bill, says the BBC's Americas editor Justin Webb. President George W Bush has warned of "painful and lasting" consequences for the US should Congress fail to agree a rescue plan.

In other developments: The European Union outlines its own proposals for reforming banking regulation which, if approved, could see dramatic changes to the way in which banks operate. RUSSIAN PRIME MINISTER VLADIMIR PUTIN SAYS THE "IRRESPONSIBILITY" OF THE US FINANCIAL SYSTEM IS TO BLAME FOR THE CRISIS.

It is no accident that, for the second time in a year, Labour has had to take a mortgage bank into what it politely calls 'temporary public ownership'. A large part of B&B's mortgage book were 'buy-to-let' investors convinced that interest rates would remain low and property values would always rise. It has therefore accumulated SOME OF THE MOST TOXIC ASSETS ON THE HIGH STREET, WITH LOANS GOING BAD AT ALMOST TWICE THE RATE OF THOSE AMONG OTHER RESIDENTIAL LENDERS.

Of course, the decision to nationalise B&B is a flea bite compared to the $700billion being spent to rescue the American banking system and the £100billion already issued by the Bank of England to help all mortgage lenders. Yet it is likely to be hugely controversial. The taxpayer is being asked to pick up the bank's heavily damaged mortgage debts while the healthier areas - the branches and savings - are being parcelled off to the private sector.

The Chancellor, Alistair Darling, is proposing a new 'resolution regime' for failing banks under which the Bank of England will be charged with running down failing banks. However, none of this will come in time TO RESTORE THE FAITH OF THE PUBLIC IN THEIR FINANCIAL PROVIDERS OR TO CONVINCE PEOPLE THAT THOSE RESPONSIBLE FOR THIS CRISIS HAVE PAID A SUFFICIENT PRICE IN TERMS OF LOSING THEIR JOBS AND GROTESQUELY INFLATED SALARIES.

If he loses his job as a result of the crisis, he will enter the record books with one of Britain's briefest tenures. Mr Pym's basic annual salary is £750,000, and his service contract is for 12 months but subject to 'a minimum period of two years'. If the axe falls within this period, the annual report suggests he could be in line for TWO YEARS' BASIC SALARY, EQUAL TO £1.5MILLION. He was also GUARANTEED A MINIMUM CASH BONUS WORTH £375,000 FOR HIS WORK IN 2008, and would have got at least the same amount for the first half of next year.

He was also given share options worth £1.5million, or twice his basic salary, when he joined the firm, but these may end up being worthless.

Even inter-bank rates – what banks charge to lend to each other – were falling. SO LAST WEEKEND, AS PAULSON PURRED, WE ALL SAW A LIGHT AT THE END OF THE TUNNEL. YET, AS WE NOW KNOW, THAT LIGHT WAS AN ONCOMING TRAIN. Last weekend I warned, despite the euphoria, the bailout could cause an "almighty, debilitating political dust-up". Unfortunately, that's what happened. Having spent the last few days in the US, I can vouch voters are very, very angry about feather-bedding a bunch of overpaid bankers. Even in New York, a city that lives and breaths high finance, the tabloids screamed "Fraud Street" – aimed directly at the Wall Street crowd.

Just six weeks before the most hotly contested Presidential contest in decades, it's not surprising the politicians have waded in. In Congress, many Democrats, and even Republicans, have refused to approve the bailout. Some want extra home-owner protection. Others say that would spook the banks even more. Almost everyone wants limits on bankers' salaries. AND THERE IS SENSE, TOO, THAT HUGE GOVERNMENT BAILOUTS ARE "SOCIALIST" AND "UN-AMERICAN".

With Wall Street warning of an almighty crash on Monday unless a bailout is agreed, a deal of sorts will emerge this weekend – if only something preliminary. But I'm not sure it will work. What's more, MANY BANKS – IN AN ACT OF ON-GOING SELF-DELUSION – HAVE "PRICED" THEIR SUB-PRIME SECURITIES AT ONLY A SLIGHT DISCOUNT TO FACE-VALUE.

But when TARP (Troubled Asset Relief Programme ) steps in, and establishes genuine prices, many banks will be forced to make even more writedowns. So far, around $510m of sub-prime losses have been "fessed-up". IRONICALLY, PAULSON'S BAILOUT COULD SEE THAT ESCALATE TWO- OR EVEN THREE-FOLD – SO SPARKING A NEW WAVE OF PANIC.

Consider, also, that the situation will remain very fragile until US house prices stop falling. The more prices drop, the more sub-prime loans will default, causing banks to incur more losses. But as new data showed last week, America's housing market may yet have further to fall.

SO THIS BAILOUT IS ONLY ROUND ONE.

When you look at things this way, it becomes clearer what the frenzy in New York City and Washington is all about. There are major quality issues with our nation's flagship product. The authorities have acknowledged the problem - "This is a humbling, humbling time for the United States of America" is how Treasury Secretary Hank Paulson put it in one TV interview. So now Paulson & Co. are recalling defective financial products en masse, slapping GUARANTEED BY THE US GOVERNMENT labels on some of them and replacing others outright with US treasuries.

Our quandary is that we are apparently not capable of safely manufacturing $700 billion in debt securities to sell to foreigners every year, as we've been doing since 2005. That this is the same total as Treasury's bailout plan is just a coincidence. If we keep trying to borrow that much from overseas - as you've probably gathered, selling debt means borrowing money - today's quality problems may soon seem petty.

For now, we can still reassure buyers around the world by slapping that GUARANTEED label on our debt. But as financial crisis and economic slowdown cause government debts to burgeon, and as commitments to Social Security and Medicare loom closer as baby boomers retire, that confidence could easily fade.

Washington is the town of politics - bureaucratic, stodgy, conservative. The home of cheap happy-hour beer and clean-cut young interns living in cramped quarters on the Hill, who are about making a difference, not making money.

But with Wall Street hobbled by the biggest financial crisis in generations, the culture of big money has lost some of its luster. And with the Street now looking to the US Treasury for an unprecedented bailout, it's suddenly Washington that has become the center of financial action - creating, at least for this instant, an unlikely shift of power and influence.

"The financial capital just underwent a huge downsizing," said James Parrott, chief economist of the Fiscal Policy Institute, which analyzes New York's tax structure and finances. "When you're drowning and at the risk of going under completely, the taxpayers as embodied by the government in Washington are the only place to turn to." He added: "It may not be a bad thing that more decision-making rests with people in Washington rather than New York."

The loan guarantees were included in a continuing resolution that included funding for the US government and the wars in Iraq and Afghanistan. President George W. Bush has indicated that he intends to sign the bill. "We're very pleased Congress has chosen to act at this critical time," said Greg Martin, director of communications for General Motors Corp's Washington office. GM had been subject of much speculation that it could be forced into bankruptcy.

The bill, which was approved by the House of Representatives on Wednesday, are the first loan guarantees for US carmakers since Congress approved a similar 675 million dollar measure for Chrysler Corp in 1980. Chrysler Chairman Robert Nardelli, however, said this week the loan guarantees should not be considered a rescue package for struggling carmakers. "This is not a bailout," he said.

Under provisions of the new legislation, not only US carmakers are eligible for the guarantees but also suppliers and foreign automakers with plants in the United States that are more than 20 years old - Nissan and Honda's US operations qualify.