PARIS – Nations in Europe's single-currency zone agreed Sunday to temporarily guarantee bank refinancing and pledged to prevent banks failing as part of a raft of emergency measures designed to get credit flowing again.
It was Europe's most unified response so far to the global financial crisis and addresses a key part of the problem: banks' reluctance to lend to each other. That has helped fuel the crisis that has pulled down some of Wall Street's most storied names and is threatening the core of the U.S. and European economies.
After the Dow Jones industrial average ended its worst week in history, plummeting more than 18 percent last week, world leaders scrambled all weekend for a way to unblock money markets before they open Monday.
At an emergency summit of leaders of the 15 euro-zone countries in Paris on Sunday, European governments agreed to guarantee new bank debt until the end of 2009, allowed governments to help banks by buying preferred shares, and vowed to rescue important failing banks through emergency recapitalizion.
But it stopped short of a one-size-fits-all solution: It's up to individual governments to announce how they will implement the measures.
"I want to tell our compatriots in all the countries of Europe that they can and should have confidence," summit host French President Nicolas Sarkozy said.
Sarkozy hoped the momentum from Sunday's meeting wouldn't stop at Europe's borders, and renewed his call for a summit of major world economies to help rebuild an international financial system "to make European ideas triumph."
European Central Bank Chief Jean-Claude Trichet welcomed the unity of Europe's leaders — but warned there is more work to do.
"The force of unity that we showed today is a fundamental element of confidence," said European Central Bank Chief Jean-Claude Trichet.
But "there are still many things to do," both by governments and central bankers, Trichet added.
European Commission President Jose Manuel Barroso said: "Our analysis isn't of an immediate miracle."
The plan follows Britain's 50 billion-pound ($88 billion) plan to partly nationalize major banks and promised to guarantee a further 250 billion pounds ($438 billion) of loans to shore up the banking sector.
But there was no sum given on how much the EU measures would cost, and Sarkozy said each country would decide how much it would spend.
British Prime Minister Gordon Brown, who met with Sarkozy earlier Sunday, said: "I believe that there is common ground now about what needs to be done, that it has to be comprehensive, and it has to be all countries working together to get to the bottom and solve what is a global financial problem."
Sarkozy said the measures — which also include new accounting rules for banks — will be enacted "without delay" in the 15 countries using the euro.
On Monday, the governments of Italy, Germany, France and others will present their individual ways of implementing the measures. The rest of the 27-member EU will have a chance to sign up to the measures when the countries meet Wednesday.
The statement by EU leaders said they agreed to "avoid the failure of relevant financial institutions, through appropriate means including recapitalization."
Governments would guarantee "for an interim period and on appropriate commercial terms" new debt issued by banks for up to five years.
"This scheme would be limited in amount, temporary and will be applied under close scrutiny of financial authorities until Dec. 31, 2009," it said.
Sarkozy said the measure taken by the leaders is "not a gift to banks."
"Banks need to be loaned money," he said. "So that this confidence is restored, states will have the possibility to guarantee the loans that banks take out, guarantee them under different forms."
German Chancellor Angela Merkel said the measures "will allow markets to start functioning again, that was our aim. It is a strong message to the markets."
As the financial crisis drags down the global economy, world leaders are scrabbling for a way to stop the panic. But efforts to agree on a coordinated global response have stumbled as leaders seek to address the unique challenges of their own countries.
"It's not easy," said Sarkozy. "We have different traditions. For some of us we don't have the same currency. We have different regulators."
But, he said, "In a situation of urgency we had to take responsibility."
Even within the 27-nation EU, some countries are facing the collapse of a housing market, some have had to step in to save banks, while others have faced different problems.
Finance ministers from the Group of 20, which includes rich countries and major developing nations such as China, Brazil and India, meeting in Washington this weekend, pledged to intensify their efforts to unblock a frozen financial system before it does more damage to an increasingly shaky global economy — but made no concrete offers of new moves.