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Paris summit seeks European response to crisis
(Agencies)
Updated: 2008-10-04 19:37

"To avoid a domino effect, the intervention of states and central banks is essential."

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Just hours before the meeting, the Dutch government stepped in to help Belgo-Dutch financial services group Fortis, committing 16.8 billion euros ($23.3 billion) and partly nationalizing a company that got more than 11 billion euros of rescue funds just five days earlier.

That in itself was just one of five rescue operations across Europe in a few days and totaling more than $100 billion.

United?

The $700 billion approved by the US Congress is earmarked to buy up assets that turned toxic when the US 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 on signs of a gathering recession. The dollar was also in retreat.

"This probably comes a bit too late. If this had been done earlier, it probably would have had a much bigger impact in restoring confidence," said Anna Piretti, economist at BNP Paribas in New York.

The Paris summit is expected to focus on is whether governments across the European Union should raise bank deposit protection levels in an effort to restore confidence.

Some EU countries guarantee 20,000 euros of deposits, while the Irish government decided this week to provide what appears to be the world's only unlimited guarantee, breaking ranks with others and irking London because the move drained deposits away from neighboring British lenders.

The Irish government said it had no choice but to act in order to restore a sufficient level of confidence in Irish banks to improve their access to funds in capital markets, where lack of trust is causing paralysis.

But European governments still appeared to be searching for a unified approach on providing the kind of support needed to protect struggling financial institutions.

Reported suggestions of a collective EU bank rescue fund of 300 billion euros ($415.7 billion) were leaked to media earlier in the week but squashed rapidly after strong objections from Germany and Britain.

"Beyond these actions and consultation at an informal level, Europe's interest requires an intense effort of coordination and convergence," Sarkozy said in a letter to European Commission President Jose-Manuel Barroso, released to media.

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