The European Commission is ready to work with EU member countries to ensure their bank deposit guarantees interact properly and urges them to coordinate their action, Commission president Jose Manuel Barroso said today.
He also said EU rules on the internal market, state aid and budget discipline were flexible enough to cope with the kind of "exceptional situation" hitting global markets and did not need to be changed or suspended.
"They are designed to address changing circumstances. Their equitable application is the basis for mutual confidence and for a lasting recovery. Of course we will apply these rules with the necessary flexibility," Barroso said in a prepared speech text.
European governments struggled today 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 yesterday offered 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 today in which the 27 European Union 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 today, sinking to four-year closing lows.
Things moved so fast that German 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 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.
Mr Sarkozy 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 contact German Chancellor Angela Merkel.
Confusion reigned over the idea of a cross-border government rescue fund for the banking sector after Italy's president 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.
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."
Arriving for the Luxembourg meeting, Spain's Mr Solbes said it made no sense for Europe to replicate the $700-billion bailout being adopted in the United States but that this did not mean Europe could not find a collective response of its own.
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 is being made elsewhere so far.
Mr Sarkozy, who promised some time back that no French saver would lose a euro, summoned French bank and insurance executives to a meeting this afternoon, the second in a week.
Reuters