Germany seeks to reassure savers

Chancellor Merkel: Your deposits are safe

German Chancellor Angela Merkel has moved to reassure savers in German financial institutions that their deposits are safe.

The step came as one of Germany's biggest lenders, Hypo Real Estate, struggled to stay afloat.

But BBC business editor Robert Peston says it is unclear if this is a 100% government guarantee of all savings deposits.

Ms Merkel also said she would pull out all the stops to save Hypo Real Estate.

The bank is in trouble after a 35bn euro ($48bn; £27bn) rescue plan collapsed.

Hypo Real Estate has said it will study alternative measures to fund its business.

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Ms Merkel's comments came after Europe's major economies agreed to co-ordinate their response to the crisis.

She was speaking followed an emergency meeting with the central bank and financial regulator.

"We tell all savings account holders that your deposits are safe. The federal government assures it," Ms Merkel said.

"We will not allow the distress of one financial institution to distress the entire system. For that reason, we are working hard to secure Hypo Real Estate."

Ms Merkel has previously been strongly critical of the Irish and Greek governments' decisions to take independent action to protect all savings deposits.

Our business editor says that if the German government is making a firm commitment to guarantee all deposits, the leaders of other EU states - including the UK - would have to follow suit.

'Appalled'

The problems of Hypo Real Estate will put further strain on other financial institutions, which are struggling against a crisis of confidence in the global financial system.

Ms Merkel also said that managers at financial institutions should be held accountable for "irresponsible behaviour".

Hypo's problems should have been revealed earlier, a minister says

Finance Minister Peer Steinbrueck said he was "appalled" that the problems at Hypo had not been revealed earlier.

Hypo Real Estate relies heavily on borrowing from other banks to fund its business and has suffered badly as banks have become increasingly cautious about lending to each other.

Just last week, the firm announced that it had succeeded in securing a credit facility worth 35bn euros ($48bn; £27bn), stitched together by the government.

Under the deal, the government was going to provide the lion's share of the loan, with a consortium of banks providing 8.5bn euros ($11.6bn; £6.6bn).

It was designed to make sure that Hypo Real Estate had sufficient short and medium-term funding to make sure it could function while the international money markets remained in a deep freeze.

But Hypo Real Estate said the banks had withdrawn support for the loan, putting the whole rescue package at risk.

On Saturday, leaders of the major European economies met in Paris for talks hosted by French President Nicolas Sarkozy.

Britain, Germany, Italy and France all agreed to work together to support financial institutions - but stopped short of agreeing a US-style bank bail-out plan.

They decided instead to seek a relaxation of the EU rules governing the amount of money individual states can borrow.

The leaders also issued a joint call for a G8 summit "as soon as possible" to review the rules governing financial markets.