By Brian Love
PARIS (Reuters) - Plagued by fears for the stability of the banking system, European leaders meet on Saturday for a summit French President Nicolas Sarkozy hopes will limit the damage caused by the worst financial crisis since the 1930s.
The meeting follows approval by the U.S. Congress of a $700-billion (396 billion pound) bailout plan for the U.S. economy, starting point of the trouble that is rocking stock markets and paralysing funding markets to a point that is destabilising banks on both sides of the Atlantic.
Sarkozy's goal is perhaps above all to prove that voters and businesses in Europe can count on governments to rapidly mobilise the resources needed to keep banks up and running and protect peoples' savings, irrespective of national borders and laws.
Sarkozy has invited Germany's Angela Merkel, Italy's Silvio Berlusconi, Britain's Gordon Brown and pan-European officials including European Central Bank President Jean-Claude Trichet and Jean-Claude Juncker, chairman and chief spokesman for the finance ministers of the euro currency zone.
Just hours before the meeting, the Dutch government stepped in to help Belgo-Dutch financial services group Fortis, committing 16.8 billion euros ($23.3 billion) and partly nationalising a company that got more than 11 billion euros of rescue funds just five days earlier.
That in itself was just one of five rescue operations across Europe in a few days and totalling more than $100 billion, which while huge pales next to the amounts being deployed on the U.S. side as a year-old credit crunch hits fever pitch.
UNITED?
One of the main things the summit at the Elysee presidential palace is expected to focus on is whether governments across the European Union should raise bank deposit protection levels in an effort to restore confidence.
Some EU countries guarantee 20,000 euros of deposits, while the Irish government decided this week to provide what appears to be the world's only unlimited guarantee, breaking ranks with others and irking London because the move drained deposits away from neighbouring British lenders.
Beyond catering to voters, the Irish government said it had no choice but to act in order to restore a sufficient level of confidence in Irish banks to improve their access to funds in capital markets, where lack of trust is causing paralysis.
The $700 billion approved by the U.S. Congress -- more than has been spent on the Iraq war -- is earmarked to buy up assets that were all the rage a few years ago but turned toxic when the U.S. housing market and sub-prime mortgage market collapsed.
That snowballed into a wider financial market problem over a year ago but took on a new dimension this month when investment bank Lehman Brothers filed for bankruptcy, now just one of many Wall Street debacles that are hitting confidence in Europe too.
But European governments still appeared to be searching for a unified approach on providing the kind of support needed to protect struggling financial institutions from a failure that would threaten the entire system this side of the Atlantic.
Reported suggestions of a collective EU bank rescue fund of 300 billion euros ($415.7 billion) were leaked to media earlier in the week but squashed rapidly after strong objections from Germany and Britain.
Beyond the issue of centralised funds, Sarkozy stressed the need to show that governments could act together if need be.
"Beyond these actions and consultation at an informal level, Europe's interest requires an intense effort of coordination and convergence," the French president said in a letter to European Commission President Jose-Manuel Barroso, released to media.
Barroso is also set to attend the Paris summit, convened at a time when Europe, like the United States, is believed to be teetering on the brink of recession if not already there.
"The world is on the edge of the abyss because of an irresponsible system," French Prime Minister Francois Fillon said on the eve of the summit.
Another issue to be broached in Paris is the multi-million bonuses and the "golden parachute" exit payoffs that executives get when leaving financial companies irrespective of long-term performance.
(Writing by Brian Love; Additional reporting by Clement Dossin in Antibes, Francois Murphy and James Mackenzie in Paris, Gavin Jones in Rome, Jan Strupczewski in Brussels; Editing by Caroline Drees)
