Paris summit fails to stop unilateral action by EU states

Euobserver

Despite a display of unity and call for a confidence in the financial system by leaders of Europe's four biggest economies at a mini-summit in Paris, Germany took emergency measures to save one of the country's key mortgage providers and unilaterally moved to guarantee all private deposits to prevent further deepening of the banking crisis.

On Sunday (5 October), Berlin hammered out a €50 billion plan to save Hypo Real Estate, Germany's second biggest property lender, after a previous bail-out deal of €35 billion fell apart. The country also announced it was guaranteeing the deposits of all private savers. The collapse of the earlier rescue arrangement - approved by the European Commission last week - was caused by a decision by commercial banks and insurance companies to withdraw from the deal. They were originally supposed to cover €8 billion of the savings costs.

Forced to follow Dublin

At a meeting with her colleagues from France, Britain and Italy in Paris on Saturday, German Chancellor Angela Merkel urged "those who were responsible [for the financial crisis] to be accountable," confirming Berlin's previous line suggesting that it should not only be governments and public money that comes to the rescue of the financial sector. Ms Merkel also criticised unilateral moves by EU member states to guaranteeing all deposits in banks as Ireland and Greece had done. She pointed out that Brussels would look into the issue and hold talks with Dublin and Athens.

However, only a day later, Berlin decided to take the same measures, announcing an unlimited guarantee for all private savings.

Shortly after the Germany's move, Austrian finance minister Wilhelm Molterer said he would propose that Vienna also raise its deposit guarantee, in a bid to "to ensure Austrian savings are not withdrawn and transferred to Germany," he told ORF TV. Denmark later also followed suit, with the country's finance ministry stating that the current situation "is regarded with great concern," as it "threatens financial stability in Denmark and, if unaddressed, it may cause significant disruptions to firms and households."

The Sunday turbulence in EU capitals came following a desperate attempt by French President Nicolas Sarkozy and his guests at an emergency mini-summit to boost confidence in the European financial markets. An EU-wide reponse to the crisis however was rejected - apart from "co-ordination" between countries, with moves to be left to member states themselves.

The mini-summit agreed on a list of initiatives that the four countries will present to other EU member states at a meeting of the bloc's finance ministers on Tuesday (7 October), and to their partners in the G8 club of world's leading industrial nations meeting in Washington on Friday (10 October).