IMF boss urges European unity at crisis summit
PARIS (Reuters) - The head of the International Monetary Fund (IMF) urged European leaders on Saturday to agree a coordinated approach to deal with the worst financial crisis since the 1930s.
French President Nicolas Sarkozy is hosting heads of government from Germany, Italy and Britain for a summit he hopes will restore confidence to the banking sector and help an economy on the brink of recession in much of the developed world.
"What counts above all is coordination and the will not to act each for himself as we have seen a little bit in some European cases," Dominique Strauss-Kahn, the IMF's managing director, told reporters after meeting Sarkozy.
"The world economic situation is very worrying," Strauss-Kahn added, saying the IMF would be cutting its world economic growth forecasts.
The summit follows approval on Friday by the U.S. Congress of a $700-billion (396 billion pound) bank bailout plan to tackle a crisis sparked by a housing market collapse and a surge in bad mortgage debt.
"My administration will move as quickly as possible, but the benefits of this package will not all be felt immediately," U.S. President George W. Bush said in a radio address.
The fall-out from the crisis has redrawn the banking landscape on both sides of the Atlantic, paralysed wholesale money markets and caused huge volatility on stock markets.
Underling the problems facing the banking industry, the governments of Belgium and Luxembourg scrambled to find a buyer for the remains of troubled financial group Fortis on Saturday after the Netherlands nationalised most of its Dutch units.
The break-up of the cross-border banking and insurance group, came less than a week after a first rescue attempt in which the three governments injected 11.2 billion euros (8.7 billion pounds) into the company.
Luxembourg's economy minister said French bank BNP Paribas was one possible bidder for parts of Fortis and a solution had to be found by the end of the weekend.
"BNP Paribas is one among many possibilities," Jeannot Krecke told Luxembourg's RTL radio station.
TENSIONS
Beyond offering reassuring words, the summit is expected to focus on whether governments across the European Union should raise bank deposit protection levels to restore confidence, and may demand that financial executives cut big pay-offs which are not linked to performance.
However, signs of division showed before the talks. Germany repeated its opposition to using taxpayer funds to help ailing banks and Finland complained that the meeting did not extend to all members of the EU.
Ireland has also annoyed some other European countries by promising to guarantee all bank deposits, a move which prompted some depositors in Britain to move their savings to branches of Irish banks.
Sarkozy has invited German Chancellor Angela Merkel, Italian Prime Minister Silvio Berlusconi and Prime Minister Gordon Brown to the talks. All four countries are members of the G8 club of industrialised countries.
European Central Bank President Jean-Claude Trichet and Jean-Claude Juncker, chairman and spokesman for the finance ministers of the euro currency zone, were also expected to attend, plus European Commission president Jose Manuel Barroso.
RECESSION FEARS
The $700 billion bail-out approved by the U.S. Congress is earmarked to buy up assets that turned toxic when the U.S. housing market and sub-prime mortgage market collapsed.
Stocks, which had been higher before the vote, dropped, with the S&P 500 index closing at its lowest level in almost four years as investors focussed on signs of a gathering recession. The dollar was also in retreat.
Reported suggestions of a collective EU bank rescue fund of 300 billion euros were leaked to media earlier in the week but squashed rapidly after strong objections from Germany and Britain.
Germany stepped up its opposition to any European rescue fund on Saturday.
"I do not think it can be justified in this situation to ask the state to restore trust that has been gambled away with large-scale debt relief plans financed by tax money," Economy Minister Michael Glos told Bild am Sonntag newspaper.
Before the summit, Brown urged Europe to aid small businesses through a 12 billion pound fund from the European Investment Bank. The EIB has said the money would be spread over two years, but Brown wants the funds made available immediately.
EU member Finland strongly criticised Sarkozy's summit saying all European countries should have a say on how to resolve the crisis rather than just the bigger nations.
"In my opinion it's a very bad idea," Finance Minister Jyrki Katainen told national Finnish broadcaster YLE.
(Writing by Brian Love; editing by Keith Weir)
(Additional reporting by Iain Rogers in Berlin, Brett Young in Helsinki, Matt Falloon in London, Philip Blenkinsop in Brussels and Michele Sinner in Luxembourg)