Europe rushes to avoid meltdown

European governments struggled to find a coordinated response to the crisis sweeping financial markets...

European governments struggled to find a coordinated response to the crisis sweeping financial markets Monday, as countries one after the other announced sweeping deposit guarantees on their own to try and shore up their banks. Stock markets plunged.

Iceland and Denmark became the latest countries to declare a deposit guarantee Monday after a startling announcement by German Chancellor Angela Merkel on Sunday that her government would guarantee all private bank savings and CDs held in the euro zone8217;s largest economy. 8220;We want to tell people that their savings are safe,8221; she said.

Faltering confidence in the financial system, undermined by a series of bank bailouts, was precipitating the measures, analysts said, since a failure to match guarantees by Ireland, France, Greece and Sweden could risk a massive fund outflow. Yet the guarantees themselves raised questions about their potential impact on government finances, and showed European governments were unable to find a unified approach despite a weekend summit where they agreed to do just that.

8220;Governments have no choice but to give the guarantees on deposits, otherwise we will see runs on banks and a complete loss of business and consumer confidence,8221; said Neil Mackinnon, chief economist at ECU Group. 8220;The stakes have never been higher,8221; he added.

Analysts said they wouldn8217;t be surprised if the US Federal Reserve, the European Central Bank and the Bank of England instigate the first joint action on interest rates since the September 2001 terrorist attacks on the US.

8220;I think we will see interest-rate cuts this week,8221; said ECU Group8217;s Mackinnon. So far, the banks have continued to flood the money markets with additional liquidity. On Monday, the ECB injected another 50 billion into money markets while the BoE added another 10 billion. The Swedish Central Bank increased its lending to 100 billion kronor 14.2 billion.

Additionally, the Fed said that 28-day and 84-day cash loans being made available to banks will be boosted to 150 billion each, effective Monday. Those increases will eventually bring the amounts outstanding under the program to 600 billion.

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French President Nicolas Sarkozy spoke by telephone in the morning with Brown, ECB President Jean-Claude Trichet and European Commission President Jose Manuel Barroso and was due to speak to Merkel later too.

8220;We need a coordinated response,8221; Sarkozy said during a visit to a Renault car plant in Normandy. Meanwhile European Union finance ministers were set to begin two days of talks on the crisis in Luxembourg. 8220;This is a very serious situation and one that needs to be addressed,8221; said EU spokesman Johannes Laitenberger.