Page last updated at 18:20 GMT, Sunday, 12 October 2008 19:20 UK

EU chiefs confront markets crisis

European leaders gather for a financial crisis summit at the Elysee Palace in Paris on Sunday 12 October 2008
Europe's leaders have been racing to throw banks a lifeline before markets reopen

The 15 eurozone leaders are meeting in Paris to try to establish a common front to tackle the financial crisis.

They were joined by British PM Gordon Brown, who urged them to adopt similar measures to his bank rescue plan.

According to a draft statement seen by the AFP news agency, the leaders plan to guarantee loans between banks.

Banks' unwillingness to lend to each other has been the key problem of the credit crunch and it is hoped that loan guarantees will solve it.

Money lent for up to five years would be guaranteed but the banks would be charged at commercial rates for the service.

The draft statement also says that the eurozone leaders are determined not to let any major financial institutions fail and will step in to provide extra capital to failing banks if necessary.

Gordon Brown says there is 'common ground' on what needs to be done

A member of the French government has already said that the French cabinet will hold a special session on Monday to approve a bill offering state guarantees and recapitalisation to banks in trouble.

Several other countries also announced steps to protect their banks and depositors on Sunday.

  • Norway's government said it would take control of the Norwegian branch of ailing Icelandic bank Kaupthing
  • Norway is to borrow 41bn euros ($55bn; 32bn) to pay for measures to provide extra cash to financial markets
  • Portugal's finance minister announced a 20bn euro state guarantee for banks
  • Australia has agreed to guarantee all deposits in the banks, building societies and credit unions for the next three years
  • New Zealand is guaranteeing all retail bank deposits for two years.

The British rescue plan, which was announced last week, involves making 50bn available to buy stakes in major banks, another 200bn for short term loans from the Bank of England and offering 250bn of loan guarantees for banks lending to each other.

The decisions we make in the next few days are decisions that will affect us for many years ahead
Gordon Brown

The French plan sounds similar, although the details are not yet clear.

After meeting other EU leaders, the British prime minister said he expected confidence in the banking system to be restored "in the next few days".

"The decisions we make in the next few days are decisions that will affect us for many years ahead," Mr Brown said.

He added that European leaders had found "common ground" and agreed "co-ordinated action" on the way forward.

Gilles Carrez, a senior member of the French parliamentary finance committee, said earlier: "We need a law to put in place a state guarantee and an organ that will be charged with raising funds to help banks deal with their need to recapitalise."

The heads of the EU's four biggest economies - Britain, France, Germany and Italy - held a first crisis summit last week, but were split over the need for a common plan.

Ahead of Sunday's eurozone meeting, French President Nicolas Sarkozy and German Chancellor Angela Merkel ruled out a joint financial rescue fund for Europe, along the lines of a recent $700bn rescue by the US government.

Late on Friday, the architect of the US scheme, Treasury Secretary Henry Paulson, said the US planned to invest directly in banks for the first time since the 1930s, following the UK programme of partial bank nationalisation.

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