Paris summit fails to stop unilateral action by EU states

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.

"We are telling all savings account holders that your deposits are safe. The federal government assures it," said the German chancellor after an emergency meeting with the central bank.

Snowball effect

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said he would propose that Vienna also raise its deposit guarantee, in a bid to "to ensure Austrian savings are not withdrawn and transferred to Germany," he told ORF TV.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."

Under the plan referred to as "historic" in the Danish financial history, the country's banks will over the next two years provide €4 billion in a so-called liquidation fund that would allow the ceiling on deposit guarantees to be removed, so that all deposits are secured irrespective of size, Danish daily Politiken reported.

Britain and other large economies are now under pressure to consider the same move in a bid to calm bank clients, while Iceland's government agreed to sell off some foreign assets after struggling to find the cash needed to rescue the country's entire financial system.

EU4 message from Paris

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.

"We have taken a solemn vow as chiefs of state and government to support banks and financial entities to face the crisis. Every government will use its own system for that, but in co-ordination with other member states," he told journalists after a three-hour debate.

"The main message of today is that liquidity will be assured with a view to restoring confidence," said Jean-Claude Juncker, Luxembourg's premier and finance minister, also invited to the meeting as the chair of the Eurogroup, a gathering of eurozone finance ministers.

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).

The list confirms their support for a change in accounting standards and rules governing rating agencies, sanctions for executives of failing banks as well as more flexibility for member states in meeting the budgetary criteria included in the EU's Stability and growth pact.

However, the Paris meeting made no hint of a possible Europe's version of a bail-out plan for the financial sector similar to the $700 billion package adopted by the US House of Representatives on Friday (3 October).