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LUXEMBOURG: European finance ministers were set Tuesday to begin preparing their first joint measure to reassure savers unnerved by the financial crisis by ramping up minimum bank deposit guarantees.
As panic swept through the European financial sector on Monday with stock markets plunging amid growing concerns about the health of the banking system following a series of recent state bailouts, EU countries signalled they plan to protect savers.
In joint declaration they pledged to protect the stability of financial institutions by providing "liquidity support through central banks, action to deal with individual banks or enhanced depositor protection schemes.
In Luxembourg, finance ministers of the 15 countries that share the euro met on Monday evening, and ministers from all 27 EU members were set to meet on Tuesday to begin working to put that pledge into action.
"We will all take the necessary measures to ensure the stability of the financial system," said Jean-Claude Juncker, who heads the group of finance ministers from the 15 countries that share the euro.
"We have agreed (to assure) that no financial institution of systemic importance should be allowed to fail," he told journalists after chairing a meeting in Luxembourg, where he is both premier and finance minister.
A coordinated European response to the crisis has been slow in coming despite the leaders of Britain, France, German and Italy meeting over the weekend, with Berlin opposing a proposal to create a European-wide bank rescue fund along the lines of the US$700-billion US bailout package.
But the Luxembourg meeting could produce the first joint European response to the financial crisis in the form of a plan to lift minimum bank deposit guarantees to as much as 100,000 euros (US$135,000).
Spanish Finance Minister Pedro Solbes, as well as several diplomats, said that the European Commission would propose a sharp increase in the deposit guarantee at the Tuesday meeting.
Currently EU law requires member states to guarantee savers' deposits to at least 20,000 euros in case a bank goes bust, although some states offer much higher protection.
However, a growing number of states have rushed to lift the limit far above that in hope of restoring faith in the banking system, fuelling concerns about big discrepancies between European countries.
After an exchange of views between eurozone ministers on Monday night, two European officials speaking on condition of anonymity said that the proposal could call for a minimum guarantee of as much as 100,000 euros.
After Germany offered a blanket guarantee on bank deposits on Sunday, Austria, Britain, Denmark, France, Portugal, Spain and Sweden indicated they had similar plans in the works.
Ireland triggered the rush last week with a law offering an unlimited guarantee on all deposits at its biggest banks.
"We see too much variety in Europe," lamented Dutch Finance Minister Wouter Bos. "We risk a race to the bottom, or a race to the top ... I don't think that is in Europe's interest."
Ireland stirred concerns in other EU countries that savers could flock to Ireland to park their savings in its banks after it passed the law offering an unlimited state guarantee.
- AFP/yb
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