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WRAPUP 1-Europe struggles to combat financial crisis in unison

Mon, Oct 6 2008, 14:28 GMT
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PARIS, Oct 6 (Reuters) - European governments fought on Monday to shield banks and bank depositors from a global financial crisis that is undermining confidence, endangering the economy and casting doubt on their ability to respond as one.

Germany promised blanket deposit protection for bank savers, prompting similar responses from Austria, Denmark and Sweden, days after Dublin took more draconian deposit insurance measures in a bid to restore confidence in the banking system.

Things moved so fast that Finance Minister Peer Steinbrueck pulled out of meeting with other euro zone ministers to work on a system-wide rescue plan for Germany, just hours after signing the second bailout in a week for a property finance group hard hit by the global credit crunch, Hypo Real Estate.

The ministers at that euro zone meeting later in Luxembourg were being asked to endorse assurances the leaders of Germany, France, Britain and Italy made to financial stability and bank solidity after an emergency summit in Paris on Saturday.

The leaders of Europe's four largest economies pledged to defend the stability of the banking system on a case-by-case basis, nationally or collectively, without recourse to the creation of a pan-European rescue fund.

That summit prescribed nothing specific on the protection of bank deposits. But the national announcements made since then and a threat from Spain on Monday highlighted how hard it is for the 15 euro zone or 27 European Union countries to act in unison.

Economy Minister Pedro Solbes said that Spain was ready to move unilaterally to guarantee deposits if EU leaders failed to come up with a common plan to shore up the banking system.

Spain is annoyed at France, which holds the rotating EU presidency, for not inviting it to the weekend summit, a government official said on Monday, in further evidence of spreading divisions between European governments over tackling the financial crisis.

French President Nicolas Sarkozy, who hosted the summit, hopes what was agreed can be embraced by the rest of the euro zone and the broader EU group.

He was back on the phone on Monday to British Prime Minister Gordon Brown, European Central Bank chief Jean-Claude Trichet and European Commission head Jose Manuel Barroso, and said he would also be talking to German Chancellor Angela Merkel.

Confusion reigned over the idea of a cross-border government rescue fund for the banking sector after Italian Prime Minister Silvio Berlusconi was quoted by local media overnight as saying such a move -- opposed by Germany and Britain -- was about to be endorsed.

The idea, conspicuously absent from the declarations made at the Paris summit Berlusconi attended, remained firmly opposed by Germany and Britain, officials said.

Berlusconi issued a statement on Monday saying all EU leaders were committed to taking whatever steps were required to protect the financial system and ensure the safety of citizens' savings.

Either way, the pressure was on for Europe to come up with something coherent, cohesive and fast-acting after several more bank rescues had to be hastily arranged during the weekend.

"Europe must prepare to put in place a collective line of defence," said Dominique Strauss-Kahn, head of the International Monetary Fund. "The stability of the world economy is at stake."

Germany's Steinbrueck explained Germany's decision to promise full deposit protection for individual savers.

"It was a signal from the Chancellor and me, that savers understand they mustn't be worried about their savings," he said. "That's important in this situation because we don't want them to run to their banks filled with fear and withdraw money."

Germany and others are, despite those moves, annoyed with the Irish for going it alone with a more ambitious plan that offers state guarantees for all liabilities of six Irish banks, and via legislation rather than the political commitment that are being made elsewhere so far.

Sarkozy, who promised some time back that no French saver would lose a euro, summoned French bank and insurance executives to a meeting on Monday afternoon, the second in a week.

Over a frantic weekend, Hypo Real Estate was not the only focus of moves to shore up banking stability.

Following Dutch government nationalisation of the bulk of its Dutch businesses, the Belgian-Luxembourg rump of financial services firm Fortis was sold to France's BNP Paribas after a flurry of emergency meetings.

(with reporting from bureaux across Europe; editing by Victoria Main) Keywords: FINANCIAL EUROPE/

tf.TFN-Europe_newsdesk@thomsonreuters.com

cmr

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