German deposits guarantee blows hole in EU's action plan
• Merkel tells all private savers their money is safe • Paris summit criticises Ireland over similar action
Gordon Brown is welcomed to EU meeting by Nicolas Sarkozy, the French president, in Paris. Photograph: Eric Feferberg/AFP
The EU's plans for a collective response to the global financial crisis were in tatters last night after Germany said it would guarantee all private savings to prevent panic withdrawals - just a day after criticising the Irish for doing the same.
Angela Merkel, the chancellor, said in Berlin: "We're saying to savers that their deposits are secure." Peer Steinbrück, the finance minister, added: "I'd like to stress that we'll make sure that no German saver should fear losing a euro of their deposits."
Their comments came hours after it emerged that the EU is forcing Ireland to substantially change its plans to offer all savers and businesses an unlimited guarantee on their bank deposits.
Neelie Kroes, the EU competition commissioner, said the Irish scheme, adopted without consulting either Brussels or other European governments, was discriminatory and would be modified. "A guarantee without limits is not allowed," she told Dutch TV.
The EU's top four leaders, including Merkel, slapped down Dublin's go-it-alone approach at an emergency summit on Saturday after the European commission had earlier forced Greece to row back on a similar plan to provide limitless guarantees for bank deposits.
The commission will soon propose laws to lift the EU-wide minimum guarantee from the current €20,000 (£15,500) and ensure speedier payment if banks become insolvent. But Merkel jumped ahead, pledging that the German scheme - which relies on high street banks to pay out above the minimum - would be wholly state-guaranteed.
As the four leaders - Gordon Brown, Merkel, Italy's Silvio Berlusconi and host Nicolas Sarkozy, France's president - called for a new global financial system and an end to "speculative" capitalism, Peter Mandelson, the incoming business secretary, said the crisis could spark a new wave of economic nationalism.
Mandelson, EU trade commissioner for the past four years and a critic of the Irish and Greek schemes, said the danger was that each country could undermine a collective response by looking for a "get out of jail free" card.
On Saturday, clearly aware that they could be facing the worst economic crisis since the 1930s, the four leaders backed Sarkozy's call for a global summit to draw up a new international financial system to replace the one adopted at Bretton Woods in 1944.
Sarkozy urged a summit of the G8 countries, together with China, India, South Africa, Brazil, Mexico and Indonesia, by next month at the latest.
"We are laying the foundations of entrepreneurial capitalism, not speculative capitalism," he told journalists. "After this crisis we will have built the pillars of a new financial world." Tougher international regulation should be applied to all financial market players, including hedge funds, he said.
The summit in effect buried temporarily the strict 3% budget deficit limit imposed by the Maastricht treaty as EU governments are forced to bail out stricken banks with hundreds of billions of euros, putting huge strains on their budgets.
Claude Guéant, a Sarkozy adviser, said that did not mean EU countries would "wriggle out" of commitments towards a balanced budget by 2012. "We are in exceptional circumstances but that does not mean France will let its deficit run away," he told French radio.
• Merkel tells all private savers their money is safe • Paris summit criticises Ireland over similar action
Gordon Brown is welcomed to EU meeting by Nicolas Sarkozy, the French president, in Paris. Photograph: Eric Feferberg/AFP
The EU's plans for a collective response to the global financial crisis were in tatters last night after Germany said it would guarantee all private savings to prevent panic withdrawals - just a day after criticising the Irish for doing the same.
Angela Merkel, the chancellor, said in Berlin: "We're saying to savers that their deposits are secure." Peer Steinbrück, the finance minister, added: "I'd like to stress that we'll make sure that no German saver should fear losing a euro of their deposits."
Their comments came hours after it emerged that the EU is forcing Ireland to substantially change its plans to offer all savers and businesses an unlimited guarantee on their bank deposits.
Neelie Kroes, the EU competition commissioner, said the Irish scheme, adopted without consulting either Brussels or other European governments, was discriminatory and would be modified. "A guarantee without limits is not allowed," she told Dutch TV.
The EU's top four leaders, including Merkel, slapped down Dublin's go-it-alone approach at an emergency summit on Saturday after the European commission had earlier forced Greece to row back on a similar plan to provide limitless guarantees for bank deposits.
The commission will soon propose laws to lift the EU-wide minimum guarantee from the current €20,000 (£15,500) and ensure speedier payment if banks become insolvent. But Merkel jumped ahead, pledging that the German scheme - which relies on high street banks to pay out above the minimum - would be wholly state-guaranteed.
As the four leaders - Gordon Brown, Merkel, Italy's Silvio Berlusconi and host Nicolas Sarkozy, France's president - called for a new global financial system and an end to "speculative" capitalism, Peter Mandelson, the incoming business secretary, said the crisis could spark a new wave of economic nationalism.
Mandelson, EU trade commissioner for the past four years and a critic of the Irish and Greek schemes, said the danger was that each country could undermine a collective response by looking for a "get out of jail free" card.
On Saturday, clearly aware that they could be facing the worst economic crisis since the 1930s, the four leaders backed Sarkozy's call for a global summit to draw up a new international financial system to replace the one adopted at Bretton Woods in 1944.
Sarkozy urged a summit of the G8 countries, together with China, India, South Africa, Brazil, Mexico and Indonesia, by next month at the latest.
"We are laying the foundations of entrepreneurial capitalism, not speculative capitalism," he told journalists. "After this crisis we will have built the pillars of a new financial world." Tougher international regulation should be applied to all financial market players, including hedge funds, he said.
The summit in effect buried temporarily the strict 3% budget deficit limit imposed by the Maastricht treaty as EU governments are forced to bail out stricken banks with hundreds of billions of euros, putting huge strains on their budgets.
Claude Guéant, a Sarkozy adviser, said that did not mean EU countries would "wriggle out" of commitments towards a balanced budget by 2012. "We are in exceptional circumstances but that does not mean France will let its deficit run away," he told French radio.
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