Germany became the latest country to move to allay fears about the financial meltdown, enhancing a rescue plan for Hypo Real Estate AG and guaranteeing private bank accounts as European governments scrambled on their own Sunday to save failing banks.
Chancellor Angela Merkel said that no citizen should fear for the safety of his investments. Hours later, her government announced a new bailout package totaling $69 billion for Hypo Real Estate, Germany's second-biggest commercial property lender.
Hypo said an original $48billion rescue plan fell apart after private lenders withdrew support, a key element to the proposal that the EU had already approved.
The deal was on top of the guarantees of private accounts. German Finance Ministry spokesman Torsten Albig said the unlimited guarantee covered some $785 billion in savings and checking accounts as well as time deposits, or CDs.
At the same time, Belgian Prime Minister Yves Leterme said France's BNP Paribas SA had committed to taking a 75 percent stake in Fortis NV.
Leterme said the Belgian and Luxembourg governments would, in turn, take a blocking minority share in BNP Paribas.
The deal came after two days of closed-door talks between the Paris-based bank, Fortis and government authorities in an effort to restore confidence in the company before markets open today.
In Iceland – particularly hard-hit by the credit crunch – government officials and banking chiefs were discussing a possible rescue plan for the country's overstretched commercial banks.
British treasury chief Alistair Darling said he was ready to take “pretty big steps that we wouldn't take in ordinary times” to help the country weather the credit crunch.
In the past year the government has nationalized struggling mortgage lenders Northern Rock and Bradford & Bingley.
“The European banking industry is feeling the wind of default blowing from the other side of the Atlantic,” said Axel Pierron, senior vice president at Celent, a Boston, Massachusetts-based financial research and consulting firm.
The erosion has also injured overall confidence and caused concern among investors, politicians and the European public.
The leaders of Germany, France, Britain and Italy met Saturday to discuss the meltdown that has leapfrogged across the Atlantic from the U.S. to Europe, but shied away from action on the scale of the massive $700 billion bailout passed by the U.S. Congress on Friday and later signed into law by President Bush.
Their failure to agree to an EU-wide plan showcased the divisions in Europe on how to deal with the crisis.
France had suggested a multibillion-euro (multibillion-dollar) EU-wide government bailout plan, but backed off after Germany said banks must find their own way out.
French President Nicolas Sarkozy's top adviser, Claude Gueant, insisted that a “common European plan” had come out of the summit.
“What is certain and what the citizens of France and Europe must know is that their (banking) establishments won't be left in difficulty,” he told Europe-1 radio on Sunday.