European leaders vow unity against financial mayhem

PARIS, Oct 4 (Reuters) - European leaders vowed after crisis talks on Saturday to do all they could to fend off the financial mayhem that snowballed out of Wall Street and is now hitting banks in Europe.

They made statements of principle rather than proposing new concrete measures to deal with the worst financial crisis since the 1930s.

"We jointly commit to ensure the soundness and stability of our banking and financial system and will take all the necessary measures to achieve this objective," said a joint statement issued from the meeting in Paris.

French President Nicolas Sarkozy, host, said that he and the leaders of Germany, Britain and Italy had agreed governments needed to act in a coordinated manner.

But he said he had never gone as far as to propose a pan-European crisis fund for banks -- something Berlin had balked at when talk of it surfaced a few days ago.

"We have taken a solemn undertaking as heads of states and government to support the banks and financial institutions in the face of this crisis," he told a joint news conference held with other leaders. German Chancellor Angela Merkel, keen not to become bankroller-in-chief as governments seek a joint response to the worst crisis since the 1930s, said those who caused the trouble must be made to help sort it out.

She stuck to that basic message at the news conference where leaders took turns to stress the need to restore confidence and work with other countries on short- and long-term strategy.

Sarkozy invited the three other leaders to the meeting in the hope of showing unity to restore confidence in the banking sector and an economy on the brink of recession in much of the developed world.

British Prime minister Gordon Brown said no sound and solvent bank would be allowed to fail for lack of liquidity and repeated the point at the news conference.

"We will continue to do whatever is necessary," he said.

The summit follows approval on Friday by the U.S. Congress of a $700-billion bank bailout plan to tackle a crisis sparked by a housing market collapse and a surge in bad mortgage debt.

"My administration will move as quickly as possible, but the benefits of this package will not all be felt immediately," U.S. President George W. Bush said in a radio address.

The fall-out from the crisis has redrawn the banking landscape on both sides of the Atlantic, paralysed wholesale money markets and caused huge volatility on stock markets.

As the leaders spoke, Belgium and Luxembourg were racing to find a buyer for what remained of bank and insurance group Fortis after the Netherlands government nationalised the bulk of the troubled Benelux outfit's Dutch businesses in a rush operation on Friday.

Officials said emergency meetings were taking place in Belgium about the rump left after the 16.8 billion euro nationalisation by the Dutch, which took place less than a week after a first rescue attempt in which the three governments injected 11.2 billion euros ($15.4 billion).

Luxembourg's economy minister said French bank BNP Paribas (other-otc: BNPQY.PK - news - people ) was one possible bidder for parts of Fortis and a solution had to be found by the end of the weekend.

IRISH PRECEDENT

The leaders in Paris highlighted several issues that needed to be addressed at a broader level, including a meeting of euro zone and EU finance ministers on Monday and Tuesday and, as soon as possible, a meeting of leaders of the G8 group of developed economic powers.

Among them was a call for restraints on executive pay and a pledge to work in the weeks ahead on the question of bank deposit insurance.

That is likely to focus on whether governments across the European Union should raise bank deposit protection levels to restore confidence.

Ireland annoyed some this week by promising to guarantee all bank deposits, a move that prompted some depositors in Britain to move savings to branches of Irish banks. In other countries, the protection level can be as low as 20,000 euros.

Merkel said that the European Central Bank and European Commission had been asked to discuss the matter with Dublin.

The four countries at the Paris summit are the four largest in Europe and also members of the G7 and G8 clubs of major industrial powers.

The G7 includes the United States, Japan and Canada as well and the G8 includes Russia as well.

European Central Bank President Jean-Claude Trichet and Jean-Claude Juncker, chairman and spokesman for the finance ministers of the euro currency zone, also attended the Paris summit, as did European Commission chief Jose Manuel Barroso.

The $700 billion bail-out approved by the U.S. Congress is earmarked to buy up assets that turned toxic when the U.S. housing market and sub-prime mortgage market collapsed.

Stocks, which had been higher before the vote, dropped, with the S&P 500 index closing at its lowest level in almost four years as investors focused less on recession risk rather than the hope of relief.

(Writing by Brian Love; Editing by Richard Balmforth) (reporting by Iain Rogers in Berlin, Matt Falloon in London, Philip Blenkinsop in Brussels, Michele Sinner in Luxembourg, Ilona Wissenbach, Tamora Vidaillet, Crispian Balmer in Paris)