EUROPEAN leaders have pledged to bail out their nations' banks while stopping short of a regional rescue effort to deal with the global credit crisis.
At a summit in Paris on Saturday, the leaders of France, Germany, Britain, Italy, Luxembourg, the European Central Bank and the European Commission agreed to ease accounting rules, seek tougher financial regulations and weaken enforcement of competition and budget laws.
"Each government will act according to its own methods and its own means but in a co-ordinated manner with the other European states," said the French President, Nicolas Sarkozy, who called the meeting.
The gathering came a day after American legislators approved a $US700 billion ($900 billion) bank rescue package and as Europe's bail-out efforts began to unravel. Germany's Hypo Real Estate Holding said a government-backed €35 billion ($62 billion) deal collapsed on Friday when banks withdrew their support.
Belgian authorities worked to shore up Fortis after the lender received an €11.2 billion lifeline on September 28.
Europe "is still a dwarf compared to the US" in terms of willingness to spend, said Laurence Boone, an economist at Barclays Capital in Paris. The statement on supporting banks "is not progress. It's the same as before the summit."
The failure to forge a consensus approach to shore up banks roiled by soaring borrowing costs reflects the divisions in the 27-nation bloc. Germany criticised a plan floated by the French Finance Minister, Christine Lagarde, to set up a rescue fund. A chorus of opposition greeted Ireland's decision to guarantee its banks' deposits and debts.
Hours before the summit, the managing director of the International Monetary Fund, Dominique Strauss-Kahn, met Mr Sarkozy to press the need for agreement.
"Collective action is even more necessary in Europe than in the US because Europe is more complex than the US," Mr Strauss-Kahn said. "Action must be taken in a quickly and in a concerted manner."
The opposition of the German Chancellor, Angela Merkel, towards the plan underscored the hurdles to forging a unified front. "Each country must take its responsibilities at a national level," she said after the summit.
The government leaders did agree on policy recommendations for the European Commission and for a global summit they are seeking to deal with the credit crisis. They said they would seek to harmonise guarantees of deposit levels in the wake of the Irish move.
Britain's bank regulator, the Financial Services Authority, increased its insurance ceiling to £50,000 ($114,500) per account from £35,000 to stem a flow of funds to Ireland.
Their joint statement called for a global summit "as soon as possible" to implement "a real and complete reform of the international financial system".
Mr Sarkozy said "all actors" must be supervised, including rating firms and hedge funds.
"We want a new world to come out of this," the French President said. "We want to set up the basis for a capitalism of entrepreneurs, not speculators."
Anticipating increased spending, declining tax revenue and government bank takeovers, the leaders called for "greater flexibility" in the application of EU competition and budget rules.
Bloomberg
