Economists divided on Europe bailout idea

By Nigel Davies and Ross Finley

LONDON (Reuters) - Economists are divided on whether there should be a U.S.-style bailout plan for European banks even as most predict the credit crunch to last another six months to two years, a Reuters poll showed on Thursday.

Analysts at financial and research institutions across Europe and the U.S. were also largely convinced the massive $700 billion (397 billion pound) bailout of banks already approved by the Senate, if passed, would likely put a floor under rocky markets.

Forty-two of 61 said it would, although 19 economists said it would not, indicating just how much uncertainty remains over what's needed to remedy the worst financial crisis in generations that is sending shockwaves around the world.

But the poll showed a close split of 30 to 25 for those in favour of a European rescue fund for distressed banks, with many still unconvinced of the effectiveness of such a proposal across a host of countries feeling different levels of stress.

"The problem with the EU is the fact that there are not the central institutions outside of the ECB. I doubt there will be anything similar proposed in Europe," said Jeremy Stretch, strategist at Rabobank.

On Tuesday reports said French President Nicolas Sarkozy was planning to propose a 300 billion euro (236 billion pound) EU fund to rescue banks, a story he subsequently denied.

After the European Central Bank left euro zone interest rates on hold at 4.25 percent on Thursday ECB President Jean-Claude Trichet said that such a bailout would not work politically or legally in the euro zone.

He stressed though that individual measures to temper markets were ongoing and cooperation between world central banks was extremely close.