EUROPEAN ACTION:EUROPEAN GOVERNMENTS struggled to co-ordinate their responses to the worsening financial crisis as stock markets tumbled worldwide, the euro fell and more countries moved to guarantee bank deposits, following the Irish Government's lead last week.
The European Commission called for concerted action to the growing financial crisis yesterday as finance ministers arrived for talks in Luxembourg yesterday.
Minister for Finance Brian Lenihan held talks last night with EU competition commissioner Neelie Kroes, who has asked Ireland to include foreign-owned Irish banks in the guarantee scheme to comply with EU rules.
"My preference would be EU solutions, but that isn't realistic at this moment in how to tackle the problem," Ms Kroes told a European Parliament committee in Brussels.
She warned on Sunday that the Irish guarantee could be discriminatory, but said yesterday it could be fine-tuned to bring it in line with EU law. "I welcome signs of openness by the Irish authorities to apply the scheme to other banks with significant operators in Ireland."
The Department of Finance says it would consider "sympathetically" any applications from foreign subsidiaries in Ireland with significant high street retail presences. Five foreign-owned Irish banks have applied to join.
The German government said on Sunday it would guarantee depositors' savings, while criticising the Irish measure as distorting the European market.
"The Irish have opened a rescue umbrella that discriminates in the internal market, while the German approach aims to protect savers from losing even a single euro," German deputy finance minister Joerg Asmussen said in Luxembourg.
Germany's second-largest property lender, Hypo Real Estate, which owns Dublin-based public sector lender Depfa, fell 37 per cent amid concerns a €50 billion government-led bailout agreed over the weekend will not save the bank from collapse.
Hypo was forced to seek the lifeline last week, blaming its difficulties on Depfa, which it said had failed to secure short-term funding amid the credit crunch. This is despite the fact that the Dublin bank had a better credit rating than its parent bank.
The European Central Bank (ECB) said the Irish Government should have "properly" informed the EU before announcing the bank-guarantee scheme.
One government after another followed Berlin's weekend announcement and unveiled state guarantees for all bank deposits.
Italian prime minister Silvio Berlusconi vowed that his officials would revive talk of a pan-EU rescue package at talks. Mr Berlusconi claimed Ms Merkel now agreed with him on the need for the plan after rejecting it at the weekend in Paris.
Austria was the first to follow Ireland and Germany, announcing a state guarantee on Sunday evening. As the Vienna stock market plunged a record 10 per cent, finance minister Wilhelm Molterer said the government was prepared to raise its guarantee from €20,000 to "whatever arises from political discussions".
Denmark was next, with its government announcing yesterday morning that it would guarantee all bank deposits for two years if, in exchange, banks set up a 35 billion Danish crowns (€4.69 billion) liquidity fund.
Under the Danish guarantee, the banks will not be allowed to pay dividends to shareholders, buy back their own shares or form new stock option plans for their management.
This guarantee will cover National Irish Bank, which is owned by Danske, Denmark's largest financial group. As a result, NIB has said it will no longer seek to join the Irish scheme.
Sweden also moved yesterday, doubling deposit guarantees to the equivalent of €51,420.
Iceland is offering an unlimited guarantee for all bank savings accounts. The government in Reykjavik announced the move as trading was halted in six of Iceland's biggest banks and financial companies. Among the stocks suspended was Landsbanki, which last week agreed to sell Dublin-based stockbrokers Merrion.
Last week, the Greek government headed off a reported run on banks by increasing the country's guarantee fund. Now all deposits enjoy a state guarantee, compared to the previous €20,000 limit.
The British government expressed satisfaction yesterday that Berlin was not following up its state guarantee promise with legislation. However, leading politicians, such as Liberal Democrat leader Nick Clegg, said Berlin's unilateral action had made it "completely unavoidable" for similar action in EU states yet to act.