Individual European governments issued a flurry of deposit guarantees to shore up their banks but fell short of any coordinated action Monday to deal with the crisis sweeping financial markets, even as stock markets crashed and the euro sank to its lowest level for over a year.
Though Europe's officials appeared to be paying lip service to the need for working together, they continued to make key announcements on deposits on a go-it-alone basis.
France, which holds the rotating leadership of the European Union, said its 27 governments have each pledged to take “all necessary measures to ensure the stability of the financial system” but no joint action was forthcoming, fueling the belief that the crisis would be handled differently by each country.
Germany's Finance Minister Peer Steinbrueck made clear his government's opposition to the idea that the euro zone's single largest economy should put up money to prop up institutions outside his country.
Steinbrueck said Monday that he and Chancellor Angela Merkel were considering creating a “shield” that would protect the country's entire financial sector, and that a Europe-wide shield or bailout was out of the question.
“The chancellor and I reject a European shield because we as Germans do not want to pay into a big pot where we do not have control and do not know where German money might be used,” he said in a separate interview with WDR 2 radio.
Germany deepened the sense that events were beginning to run out of control when Merkel said on Sunday that her government would guarantee all private bank savings and CDs held in the country. “We want to tell people that their savings are safe,” she said.
Iceland and Denmark followed Monday with a deposit guarantee, in the former's case only once trading in the shares of six of its banks had been suspended.
Faltering confidence in the financial system following a series of bank bailouts forced governments to offer deposit guarantees, analysts said, since failure to match those offered by Ireland, France, Greece and Sweden could risk a massive funds outflow.
Yet the guarantees themselves raised questions about their potential impact on government finances and showed that European governments were still unable to find a unified approach despite a weekend summit where they agreed to do just that.
The latest attempt at finding a common response came after a weekend commitment by Europe's four leading economic powers — Germany, France, Britain and Italy — fell apart when Merkel announced Sunday that all 568 billion euros ($786 billion) worth of private deposits held in Germany would be guaranteed alongside a new 50 billion euros ($69billion) bailout package for Hypo Real Estate AG, Germany's second-biggest mortgage lender.