Europe's summit no cure for bank crisis

By Brian Love, European Economics Correspondent - Analysis

PARIS (Reuters) - Pledges made by European leaders to tackle the global financial crisis at their Paris summit on Saturday are insufficient to stop the rot banks are fighting hour by hour, analysts say.

"It's like standing on the rails and watching a train coming at you," said Daniel Gros, director of the Center for European Policy Studies in Brussels.

For Gros and other economists, the leaders of Europe's four largest economies missed an obligation to meet the challenge of the world's worst financial crisis since the 1930s, primarily because they did not propose a system-wide solution.

The leaders of Germany, France, Britain and Italy pledged in Paris to take all steps needed to ensure the stability of the financial system, and to coordinate as necessary.

They asked the European Commission to propose legislation on bank deposit protection and said the exceptional circumstances of the moment meant European limits on state aid to businesses and public deficits should be applied flexibly.

One thing they did not propose was the creation of some kind of pan-European rescue fund, an idea that had circulated in the days before their meeting, but opposed by Germany and Britain.

Nor did they suggest other systemic responses, such as the blanket guarantee Ireland's government is now offering on all retail and wholesale bank deposits, a measure Dublin said was the only way to stop the credit crunch killing banks there.

The Paris declaration reflected a will to restore confidence but nothing of a fast-acting, hard-hitting or systemic kind to achieve that objective, and certainly not at the speed needed, according to Gros and other economists who work for banks.

"There is once again a wide gap between lofty political aspirations and concrete action," Marco Annunziata, chief economist at Italian bank UniCredit, said.

HOUR BY HOUR

If a reminder of urgency was needed, it came at the weekend, when a bank rescue orchestrated by the German government just days earlier came abruptly unstuck.

German property financing company Hypo Real Estate announced on Saturday that it was "fighting for survival" after other banks in a bailout consortium led by the government withdrew their support, forcing the government to get involved again on Sunday in more emergency meetings.

"Given the concomitant collapse of the Hypo Re rescue plan, I think we need to brace ourselves for a new wave of turmoil in European markets next week," UniCredit's Annunziata said.

The board of UniCredit itself, whose shares have been hard hit amid concern over its exposure to the credit crisis, met on Sunday to decide ways of boosting the bank's capital.

And further north, Belgium and Luxembourg were scrambling to find buyers for the Belgian and Luxembourg parts of beleaguered financial services firm Fortis after the Netherlands nationalized most of its Dutch businesses on Friday.