Europe strives to combat financial crisis in unison

By Francois Murphy and Jan Strupczewski

PARIS/LUXEMBOURG (Reuters) - European governments struggled on Monday to shelter banks and bank depositors from a global financial crisis that is eroding confidence, endangering the economy and challenging their ability to respond as one.

Germany promised blanket deposit protection for bank savers, prompting similar responses from Austria, Denmark and Sweden, days after Dublin took more draconian deposit insurance measures in a bid to restore confidence in the banking system.

French President Nicolas Sarkozy issued a statement in which the 27 European Union countries committed to do what was needed to counter market mayhem and ensure no savers lost any money. His country holds the EU's rotating presidency.

As the politicians busied themselves to prevent panic, banks were prominent losers as European shares suffered their worst one-day percentage fall on record on Monday, sinking to four-year closing lows.

Things moved so fast that Finance Minister Peer Steinbrueck pulled out of meeting with other euro zone ministers to work on a system-wide rescue plan for Germany, just hours after signing the second bailout in a week for a property finance group hard hit by the global credit crunch, Hypo Real Estate.

The euro zone ministers, meeting in Luxembourg, discussed the assurances on financial stability and bank solidity first given by the leaders of Germany, France, Britain and Italy after an emergency summit in Paris on Saturday.

European Central Bank chief Jean-Claude Trichet, present in Luxembourg, said the euro zone's central bank would continue to pump emergency funding liquidity into wholesale money markets to fight the paralysis caused by the credit squeeze.

"You can tell the citizens they can count on the ECB," he told a news conference.

"We acted in good time and to a sufficient degree on money markets and we will continue to provide money markets with all the liquidity they need for as long as that is necessary."

The EU statement read out by Sarkozy extended a commitment made even before the finance ministers met and effectively broadened the promise of blanket bank deposit protection to the entire EU bloc, at least in the sense of a political pledge.

"All European Union leaders declare that each of them will take the necessary measures to ensure the stability of the financial system," it said.

"No depositor in our countries' banks has suffered any losses and we will continue to take the measures needed to protect the system and depositors," it said.

The leaders of Europe's four largest economies pledged on Saturday to defend the stability of the banking system on a case-by-case basis, nationally or collectively, without recourse to the creation of a pan-European rescue fund.

The message from Jean-Claude Juncker, chairman of the euro zone finance ministers' meeting and prime minister of Luxembourg, was the same.

ONE CHORUS, SEVERAL SOLOS