France looks to organize emergency EU summit

PARIS (Reuters) - Spain asked France on Friday to organize an emergency meeting of European leaders to discuss concerted action over the financial crisis that has sent markets into a tailspin and could unleash a global recession.

EU heads of state and government are due to hold a regular summit in Brussels next week, but the speed and ferocity of the market meltdown has piled pressure on leaders to react faster.

Italian Prime Minister Silvio Berlusconi said that EU leaders would meet in Paris on Sunday, adding that it might be followed shortly afterwards by a summit of Group of Eight industrialized nations.

Underscoring the deep sense of crisis, Berlusconi said there was an idea to suspend temporarily trade on the markets, with major European bourses deep in the red for a fifth day running.

"There is talk of suspending markets for the time needed to rewrite (international finance) rules," he told reporters. He later said the idea was a "hypothesis" that had never been mooted by any leader.

Europe's response to the month-long mayhem has been patchy and largely improvised, with various governments rushing to put out fires in their own backyards rather than work on a trans-national plan for their interconnected economies.

French President Nicolas Sarkozy, whose country holds the rotating six-month EU presidency, called together the heads of Germany, Italy and Britain last weekend, but their talks failed to produce any concrete results or halt the market slump.

Spain was unhappy not to have been invited last Sunday and Spanish Prime Minister Jose Luis Rodriguez Zapatero told Sarkozy on Friday it was time for a new meeting, this time of the 15 countries that have adopted the euro currency.

"Jose Luis Zapatero made a proposal for a meeting of the Eurogroup. It is a proposal which is interesting, pertinent and useful. I need to speak with a few people before giving a definitive response," Sarkozy told reporters.

Speaking after talks with Sarkozy, Zapatero said it was crucial for international coordination to resolve the worst financial bedlam since the Great Depression in 1929.

"There are no precedents for a situation in the international financial system characterized by a profound lack of confidence and the inability of the credit markets to function," Zapatero told reporters.

France proposed last week creating a pan-European emergency fund to prop up the sinking banking sector, but the idea was swiftly torpedoed by Germany, afraid that it would be called on to provide the lion's share of cash.

A French government source told Reuters on Friday that Sarkozy was considering launching a new European plan to tackle the crisis ahead of Wednesday's formal EU summit.

Britain has since suggested setting up a fund to guarantee inter-bank lending in Europe, which has largely ground to halt because of a lack of confidence between banks, depriving companies of desperately needed funding.

This idea has failed so far to find any buyers.

France is also pushing hard for a meeting of major, G8 industrialized nations. Italy has suggested this might now take place on Monday or Tuesday in the United States.

U.S. markets are closed on Monday giving world leaders a small window of opportunity to find the sort of universal approach to the market pandemonium that has so far eluded them.

A team of British Treasury officials headed to Iceland on Friday to discuss how to deal with an estimated 1 billion pounds of British deposits trapped in the north Atlantic island's crumpled banks.

The Iceland government seized control of three of Iceland's biggest banks -- Kaupthing, Landsbanki and Glitnir -- this week and halted all trade on the stock market as the country suffered the full force of the financial turmoil.

Britain has used an anti-terrorism law to freeze assets in one of the banks, Landsbanki, after Icelandic officials indicated they would give preference to domestic depositors.

(Reporting by Reuters bureaux; Editing by Giles Elgood)