Page last updated at 22:14 GMT, Sunday, 12 October 2008 23:14 UK

European banks rescue plan agreed

Nicolas Sarkozy announces the rescue plan

European leaders meeting in Paris have agreed a plan to tackle the banking crisis, saying no big institution will be allowed to fail.

They pledged to guarantee loans between banks until the end of 2009, and said they would put money into them by buying preference shares.

French President Nicolas Sarkozy said they were taking unprecedented steps.

World governments have been racing to throw banks a lifeline before the major markets re-open on Monday.

News of the rescue plan came from Mr Sarkozy - whose country currently holds the rotating presidency of the EU - after talks between leaders of the 15 countries in the euro currency zone.

UK Prime Minister Gordon Brown - not a member of the eurozone club - attended parts of the talks.

Britain announced a similar plan last week.

Capital injection

Mr Sarkozy said leaders had agreed a framework in which individual countries would be able to inject capital into their own banks by means of preference shares.

He said governments in Germany, France and Italy among others would be presenting their individual plans on Monday, within the agreed framework.

"The crisis has over the past few days entered into a phase that makes it intolerable to opt for procrastination and a go-it-alone approach," he said.

Mr Sarkozy said the guarantees would be at commercial rates, and he stressed rash financiers would not benefit from the public intervention.

"Where managers are at fault they will be dismissed," he said.

The poorest and most vulnerable groups risk the most serious - and in some cases permanent - damage
Robert Zoellick
World Bank president

Mr Sarkozy said the plan addressed all aspects of the financial crisis, but he did not say how much it would cost.

Analysts say sheer nervousness has been a big factor in the recent share price falls.

But European Commission president Jose Manuel Barroso - also at the talks - said the plan would end "the excessive pessimism of the markets."

"We have taken the right course for Europe, for our businesses and our citizens," he said.

Outside Europe, the plan was welcome by the head of the International Monetary Fund, Dominique Strauss-Kahn.

Speaking in Washington, he described the plan as helpful.

"I think that we now have a comprehensive response to the crisis and I think that the market will reflect it," he said.

The European plan came at the end of a weekend of crisis meetings.

"Decisive action"

On Saturday, finance ministers of the main economic nations - the G7 - meeting in Washington issued a five-point plan of what they called "decisive action" to unfreeze credit markets.

During the day on Sunday a number of individual countries announced rescue plans for their banks.

But even as attention focussed on rescue plans for nations of the rich West, the head of the World Bank, Robert Zoellick, warned that the global crisis could hit developing countries even harder.

"The poorest and most vulnerable groups risk the most serious - and in some cases permanent - damage," he said.

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