Berlin - With Germany making a blanket guarantee to cover all of the country's savings, other European countries were under increased pressure on Monday to bolster their financial defences.
While Britain was likely to be the first to feel the pressure of the German move, eurozone finance ministers meeting in Luxembourg would also be under the gun to flesh out plans for restoring confidence in the crisis-struck banking system after weekend talks among Europe's biggest economic powers.
While Germany had criticised moves by Ireland and Greece to guarantee bank deposits, on Sunday it reversed course and announced an unlimited guarantee for personal savings deposits, looking to shore up confidence in a country where failing banks evoke bitter memories of the Great Depression that helped bring the Nazis to power.
"We tell all savings account holders that your deposits are safe. The federal government assures it," German Chancellor Angela Merkel said after an emergency government meeting in a bid to prevent a panic run on banks.
The country later announced a €50bn rescue of its fourth-largest bank, Hypo Real Estate (HRE), in its largest-ever bank rescue.
The German reversal on savings ratcheted up pressure on Britain, which has also opposed giving a blanket guarantee on all bank deposits.
Finance minister Alistair Darling could outline the British response as soon as in a speech to lawmakers on Monday.
As he seeks solutions to the crisis, which ministers will discuss in a meeting of the new emergency economy committee Monday, Darling is reportedly mulling using public funds to take stakes in banks to help shore them up.
The plan, similar to the Swedish response to its banking crisis in the 1990s, would steer a middle course between full nationalisation, as with Northern Rock and Bradford & Bingley banks, and further loans.
The leader of Britain's third largest party said Britain had no choice now but to follow Germany's lead on guaranteeing deposits.
Europe's economic superpower
"Ireland's action last week to guarantee all deposits made a common European approach to deposit guarantees necessary. Germany's decision today makes it completely unavoidable," said Nick Clegg, leader of the Liberal Democrats.
"Germany is Europe's economic superpower," he said. "Where it leads, others are bound to follow.
Britain has promised to increase the level of private savings guaranteed by the government from £35 000 to £50 000 per person.
That would cover 98% of accounts but only around 60% of deposits, but the government has hesitated to give a blanket guarantee given the potential cost.
Austria is also to consider this week guaranteeing bank deposits.
European Union finance ministers will seek Monday and Tuesday to detail plans for restoring confidence in the crisis-struck banking system after weekend talks among Europe's biggest economic powers.
At crisis talks in Paris, the leaders of Britain, France, Germany and Italy vowed on Saturday to protect fragile banks but turned against a copy of the $700bn US bailout.
French Bank BNP Paribas agreed on Sunday to take control of ailing finance group Fortis's operations in Belgium and Luxembourg through a share issue, saying the operation valued the company at &eurobn14.7bn.
The Belgian and Luxembourg governments had partially nationalised the bank a week ago, but after the Dutch government took over full control of Fortis' operations in the Netherlands, they began looking for a suitor.
The French bank said it picks up more than 1 500 bank branch offices in the deal to make it Europe's largest bank in terms of deposits.
Denmark on Sunday announced the country's banks had agreed to contribute to a 35-billion-kronor (€4.8bn) to help ailing banks and guarantee deposits.
- AFP