European leaders vow to fight financial crisis

PARIS (Reuters) - European leaders vowed after crisis talks on Saturday to do all they could to fend off the financial mayhem that has snowballed out of Wall Street and is now hitting banks in Europe.

As they did so, German property lender Hypo Real Estate said it was "fighting for survival" after a government-backed rescue unraveled, and Belgium was seeking a buyer for what remained of beleaguered bank and insurance group Fortis after the rest was nationalized by the Dutch government.

"We jointly commit to ensure the soundness and stability of our banking and financial system and will take all the necessary measures to achieve this objective," the leaders of France, Germany, Britain and Italy said in a statement.

For a text of the statement please click on

The statement, after talks of about three hours, was more a declaration of principle and call for coordination of national responses than an announcement of instant new measures to deal with the worst financial crisis since the 1930s.

They urged the European Commission to produce legislative proposals in the near future on bank deposit insurance in the European Union and urged immediate establishment of cross-border supervisory colleges to improve cross-border surveillance.

French President Nicolas Sarkozy, who called the emergency meeting, said governments needed to act in a coordinated manner.

But he said he had never gone as far as to propose a pan-European rescue fund for banks -- something Berlin had balked at when talk of it surfaced a few days ago.

"We have taken a solemn undertaking as heads of states and government to support the banks and financial institutions in the face of this crisis," he told a news conference flanked by the other leaders.

DEFICIT PLEAS

The leaders' statement explicitly referred to the fact that EU rules which impose limits on national deficits also allowed for exceptional circumstances to be taken into account in their application, and that such circumstances now existed.

That recognized in theory that any government which runs up a larger deficit because of money plowed into bank rescues, or maybe just because of economic downturn itself, could plead for a waiver from the EU deficit limits.

German Chancellor Angela Merkel, keen not to become bankroller-in-chief as governments seek a joint response to the crisis, said those who caused the trouble must help fix it.

Sarkozy arranged the Paris summit in the hope that a show of unity would help restore confidence in the banking sector and an economy on the brink of recession across the developed world.

In Washington, a White House spokesman said:

"We welcome the European discussions, and appreciate the continued attention to the situation affecting the global financial system," a White House spokesman said.

British Prime Minister Gordon Brown said no sound bank would be allowed to fail for lack of liquidity.

"We will continue to do whatever is necessary," he said. Leaders were calling on the European Investment Bank, the EU's public lending arm, to "frontload" a 30-billion-euro rise in loans to small firms squeezed by a U.S.-induced credit crunch.

The summit follows approval on Friday by the U.S. Congress of a $700-billion 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 bail-out is earmarked to buy up assets that turned toxic when the U.S. housing market and sub-prime mortgage market collapsed, triggering a crisis that has paralyzed wholesale money markets, caused huge volatility on stock markets and changed the banking landscape in a matter of weeks.

MORE TROUBLE

As the European leaders met, Belgium and Luxembourg were racing to find a buyer for the rump of Fortis.

Luxembourg economy minister Jeannot Krecke said French bank BNP Paribas was one possible bidder and a solution had to be found by the end of the weekend.

That followed a 16.8 billion-euro nationalization of other parts of the group by the Dutch government on Friday, less than a week after a first rescue attempt in which the three governments injected 11.2 billion euros ($15.4 billion).

In Germany, Hypo Real Estate (HRE) said German banks and insurers had pulled out of a state-led 35 billion euro ($48.5 billion) rescue program stitched together only days ago.

"We are fighting for the future existence of the company," HRE spokesman Hans Obermeier said.

In Italy, UniCredit, the second-biggest bank by market value, called an extraordinary board meeting for Sunday, according to a source close to the bank, who said it was weighing up ways of boosting its capital.

The European leaders highlighted several issues that needed to be addressed at a broader level, including a meeting of euro zone and EU finance ministers on Monday and Tuesday and, as soon as possible, a meeting of leaders of the G8 economic powers.

Among them was a call for more restraint on executive pay as well the need to review and beef up bank deposit protection.

Ireland annoyed some this week by promising to guarantee all bank deposits, a move that prompted some depositors in Britain to move savings to branches of Irish banks. In other countries, the protection level can be as low as 20,000 euros.

(additional reporting by Iain Rogers and Gernot Heller in Berlin, Matt Falloon in London, Philip Blenkinsop in Brussels, Michele Sinner in Luxembourg, Ilona Wissenbach, Tamora Vidaillet, Crispian Balmer and Marcel Michelson in Paris, Jonathan Gould in Frankfurt, Gianluca Semeraro in Milan and Tabassum Zakaria in Texas)

(Editing by Richard Balmforth)