Leaders of the 15 Eurozone countries have reached agreement on a plan to jointly confront the banking crisis, French President Nicolas Sarkozy announced this evening.
"This is indeed a joint action that we are undertaking," he told a news conference following a summit of the 15 Eurozone countries in Paris.
"This plan addresses all aspects of the financial crisis," he said. He said eurozone countries, including Ireland, have agreed to guarantee interbank loans and said countries would unveil their national bank plans tomorrow.
“The meeting that we had was exceptional,” Mr Sarkozy told a news conference. “We need concrete measures, we need unity. That’s what we achieved. The plan on which we agreed today will be applied in all our respective states.” He said the plan treated "all the dimensions of the financial crisis”.
The leaders also agreed to use government money to prevent big lenders from going under, trying to stop the financial hemorrhage and stave off a recession.
"The crisis has over the past few days entered into a phase that makes it intolerable to opt for procrastination and a go-it-alone approach," he told a press conference at the Elysee Palace in Paris.
"We need concrete measures, we need unity, which is what we achieved today," Mr Sarkozy . "None of our countries acting alone could end this crisis."
As they improvised a response to the banking calamity that started on Wall Street, Europe's leaders sought to go beyond pledges made by the Group of Seven and to deflect criticism that they are taking scattershot country-by-country steps without a credible joint strategy.
The key measures announced today are: a pledge to guarantee new bank debt issuance until the end of 2009; permission for governments to shore up banks by buying preferred shares; and a commitment to recapitalize any "systemically" critical banks in distress.
The European Central Bank will also be able to lend money to “very big businesses” through a commercial paper market.
Mr Sarkozy said guarantees would be given at commercial rates and added that "defective managers" would be removed. He also said "rash" would not benefit for the governmental intervention.
France, Germany, Italy and other countries will announce national measures tomorrow, Mr Sarkozy said adding that the European Council will meet on Wednesday and Thursday to take further decisions.
A communiqué gave no indication of how much governments are willing to spend or the size of bank assetsdeemed at risk, leaving unclear the ultimate cost to the taxpayer.
Speaking after the meeting ended, the Taoiseach, Brian Cowen said Government investment in the Irish banking sector was not on the immediate horizon and expressed his confidence that the it had already acted to shore up Irish banks.
He said the Republic was "part of this decision" and said that for "future action those options are available. I'm not saying they are imminent are required, I am saying we have taken a decision as a eurozone group to have those options available to us if our circumstances require it and those are matters for member state governments to consider at any given time."
The Belgian finance minister, Didier Reynders said there was a commitment "in all European states to recapitalize banks if we establish a threat to solvency and a risk to the economy. The goal is to kick-start the interbank lending market."
Mr Reynders said the European Central Bank had also committed to helping to unfreeze the commercial paper market, which companies use to finance day-to-day operations.
"Our goal is to have coordinated action for the euro zone," Angela Merkel, the German chancellor, said, and the meeting "is a very important signal for the strength of the euro zone."
British Prime Minister Gordon Brown told reporters after leaving the meeting he believed "that we will see over a few days worldwide action that will make people see that confidence in the banking system can be restored," .
The leaders are racing against the clock to clinch a rescue strategy for banks battered by the worst financial crisis since the 1930s, under intense pressure to throw them a lifeline before world markets reopen.
The US Standard & Poor's 500 index tumbled more than 18 per cent last week, its worst weekly fall. European stocks plunged 22 per cent and Tokyo's Nikkei crashed 24 per cent.
Investors were waiting to see how much state money governments could mobilise to buy into banks if needed, and if they would also underwrite lending between banks, now paralysed by fear and distrust.
The draft statement of the leaders' meeting said new measures would seek to address "specific failures in present refinancing conditions."
"With a view to complementing the actions taken by the European Central Bank in the interbank money market the governments of the euro area are ready to take proper actions in a concerted and coordinated manner to improve market functioning over long-term maturities," it said.
British Prime Minister Gordon Brown was invited to Paris because the euro zone wanted possibly to replicate something like the rescue plan announced in London last week.
Mr Sarkozy and German leader Angela Merkel, who met in France yesterday, said they had prepared a number of solutions to try to restore normal flows in credit markets.
At a Paris summit a week earlier, Ms Merkel rejected the idea of a collective European rescue fund for banks and Mr Sarkozy said he had not proposed one.
That would not preclude governments saying they were ready to pay up even if they do not put all the money in one pot or surrender control of what they offer.
Before the full summit, Mr Sarkozy held a preliminary session with Mr Brown, the ECB's Mr Trichet, European Commission President Jose Manuel Barroso and Jean-Claude Juncker, Luxembourg prime minister and chief spokesman for euro zone finance ministers.
Britain's rescue plan makes available £50 billion of taxpayers' money for injection into its banks and, crucially, calls for underwriting interbank lending.
In London, big British banks are in talks with government officials and regulators and were likely to announce plans to recapitalize early on Monday, according to a person familiar with the matter.
Across the globe, Australia and New Zealand said they would guarantee bank deposits, and Gulf Arab states took emergency measures to boost confidence in the financial system.
The IMF said it backed a plan by the Group of Seven leading industrialised nations to stabilise markets. Bold action was needed to persuade banks to resume lending and bring an end to a credit crunch that has pushed global stocks to five-year lows, it said.
"Intensifying solvency concerns about a number of the largest US-based and European financial institutions have pushed the global financial system to the brink of systemic meltdown," IMF chief Dominique Strauss-Kahn said late last night.
Agencies