By Brian Love
PARIS (Reuters) - European leaders meet on Saturday for a summit French President Nicolas Sarkozy hopes will shore up confidence in a banking system hit by the worst financial crisis since the 1930s.
The meeting 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 collapse in the housing market and resulting bad mortgages.
The fall-out has redrawn the banking landscape on both sides of the Atlantic, paralysed money markets and caused huge volatility on stock markets.
Sarkozy's main aim is to prove that voters and businesses in Europe can count on governments to rapidly mobilise the resources needed to keep banks running and protect peoples' savings, irrespective of national borders and laws.
Sarkozy has invited German Chancellor Angela Merkel, Italian Prime Minister Silvio Berlusconi and Prime Minister Gordon Brown. Policymakers to attend include European Central Bank President Jean-Claude Trichet and Jean-Claude Juncker, chairman and chief spokesman for the finance ministers of the euro currency zone.
"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.
The head of one of Europe's largest banks said on Saturday that it was essential for governments to play a role in fixing the crisis.
"In Europe, the impact of the subprimes will probably still be felt in the third quarter results," Frederic Oudea, chief executive officer of French bank Societe Generale told le Parisien newspaper.
"To avoid a domino effect, the intervention of states and central banks is essential."
Just hours before the meeting, the Dutch government stepped in to help Belgo-Dutch financial services group Fortis, committing 16.8 billion euros (13.2 billion pounds) 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 (56.5 billion pounds).
UNITED?
The $700 billion (396 billion pounds) 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.
"This probably comes a bit too late. If this had been done earlier, it probably would have had a much bigger impact in restoring confidence," said Anna Piretti, economist at BNP Paribas in New York.
The Paris summit 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.
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.
But European governments still appeared to be searching for a unified approach on providing the kind of support needed to protect struggling financial institutions.
Reported suggestions of a collective EU bank rescue fund of 300 billion euros (235 billion pounds) were leaked to media earlier in the week but squashed rapidly after strong objections from Germany and Britain.
"Beyond these actions and consultation at an informal level, Europe's interest requires an intense effort of coordination and convergence," Sarkozy said in a letter to European Commission President Jose-Manuel Barroso, released to media.
(Writing by Brian Love; Additional reporting by Anna Willard; Editing by Keith Weir).
