Europe strives to combat financial crisis in unison

European governments struggled yesterday to shield banks and bank depositors from a global financial crisis that is eroding confidence, endangering the economy and challenging 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.

French President Nicolas Sarkozy issued a statement in which the 27 EU countries committed to do what was needed to counter market mayhem and ensure no savers lost any money. His country holds the EU's rotating presidency.

As the politicians busied themselves to prevent panic, banks were prominent losers as European shares suffered their worst one-day percentage fall on record yesterday, sinking to four-year closing lows.

Things moved so fast that Finance Minister Peer Steinbrueck pulled out of meeting with other eurozone 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 eurozone meeting in Luxembourg were to discuss the assurances on financial stability and bank solidity first given by the leaders of Germany, France, Britain and Italy after an emergency summit in Paris on Saturday.

The statement read out by Mr Sarkozy extended that commitment before the finance ministers even met and effectively appeared to extend the promise of blanket bank deposit protection to the entire EU bloc.

"All European Union leaders declare that each of them will take the necessary measures to ensure the stability of the financial system - whether by injection of liquidity from central banks, by measures targeted at certain banks or by steps to reinforce bank deposit protection schemes," it said.

"No depositor in our countries' banks has suffered any losses and we will continue to take the measures needed to protect the system and depositors," said the text of his statement.

"In taking these measures, the European leaders note that close coordination and cooperation are necessary," it said.

The leaders of Europe's four largest economies pledged on Saturday 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 had prescribed nothing specific on the levels of protection for bank deposits and Germany's Mrs Merkel made it clear at the time leaders were not pleased with Ireland for jumping the gun without consulting.