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BERLIN: Germany on Sunday made a blanket guarantee to cover all the country's bank savings, piling pressure on other European governments to bolster financial defences ahead of another week of predicted mayhem on global markets.
Governments are also worrying about weak banks with BNP Paribas of France now taking over large chunks of troubled Belgian-Dutch institution Fortis, while in the United States, Citigroup claimed victory in the battle with Wells Fargo for control of Wachovia bank.
German Chancellor Angela Merkel made the promise to completely back all savings as a 50 billion euro (70 billion dollar) rescue for Hypo Real Estate (HRE), the country's fourth largest bank, was arranged.
"We tell all savings account holders that your deposits are safe. The federal government assures it," Merkel said after an emergency government meeting in a bid to prevent a panic run on banks.
Ireland guaranteed bank deposits last week, drawing criticism from governments including Germany, Austria said it will decide this week whether to follow suit and the British government, having increased its guarantee, now faces opposition pressure to underwrite all savings.
"Germany is Europe's economic superpower," Nick Clegg, leader of the Liberal Democrats, Britain's third party, said. "Where it leads, others are bound to follow.
"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."
European Union finance ministers will seek on Monday and Tuesday to flesh out 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 700 billion dollar US bailout.
Back in Berlin after the summit, Merkel told reporters the government was "pulling out all the stops" to save stricken HRE bank after a banking consortium withdrew a 35-billion-euro (48-billion-dollar) rescue plan late on Saturday.
The rescue bid had been the largest in German history and came after the bank was sucked into the global financial turmoil by its inability to refinance debt, one of many high-profile European emergency cases in the past two weeks.
French bank BNP Paribas is to take control of the ailing Fortis' operations in Belgium and Luxembourg in a deal reached late Sunday following intense negotiations through the weekend, a source close to the Luxembourg government said.
BNP Paribas confirmed that it had taken control of Fortis' arms in Belgium and Luxembourg to create the "leading European bank in terms of deposits."
In the United States, US banking giant Citigroup said it had frozen out rival Wells Fargo from a takeover battle for troubled lender Wachovia after being blindsided last week in its attempt to complete the tie-up.
Citigroup said a court granted an injunction late Saturday extending its exclusive rights to negotiate a merger with Wachovia after Wells Fargo muscled in on the talks last week.
Wachovia and Wells Fargo announced the new takeover on Saturday, adding to the confusion in the US finance industry still reeling from the bankruptcy of Lehman Brothers and the takeover or fall of other Wall Street titans.
The battle for Wachovia is part of the great redrawing of the US financial landscape as commercial and investment banks go bust or seek takeovers because of losses linked to the sub-prime housing market.
While officials in Berlin sought to reassure bank customers, one German minister could not resist an alarmist take on the gathering storm in the country.
Interior Minister Wolfgang Schaeuble warned in a magazine interview to be published on Monday that the global financial crisis could have political repercussions, noting that Adolf Hitler rose to power following the 1929 Wall Street crash.
"We learned from the worldwide economic crisis of the 1920s (and 1930s) that an economic crisis can result in an incredible threat for all of society," he was quoted as saying by Der Spiegel.
"The consequences of that depression was Adolf Hitler and, indirectly, World War II and Auschwitz." - AFP/de
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