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PARIS - After two weeks of disastrous fumbling, European economies have forged a collective response to the greatest financial crisis since the 1930s.
They have committed what is likely to be hundreds of billions of euros to the goal of saving the banking system from ruin.
At an
emergency summit yesterday in Paris, the heads of the 15 countries that adopted the euro agreed to what they described as a co-ordinated strategy to bolster fragile banks and revive lending crippled by a slump of confidence.
The meeting was the last chance to throw a lifeline before Europe's stock markets reopened following last week's crash.
"Over the past few days, the crisis has entered a phase that makes it intolerable to opt for foot-dragging and a go-it-alone approach," said French President Nicolas Sarkozy, the current head of the European Union, who chaired the talks.
The package will be put to an EU summit in Brussels on Thursday and Friday, with the aim of securing backing from all 27 EU states.
However, elements of it would be put into action by the governments of France, Germany and Italy among others, as early as today, Sarkozy said.
The deal takes a two-pronged approach. The first is to end the freeze in lending between banks. Interbank lending is the heart of the credit system, providing credit flows that lubricate an economy.
It has all but stopped in the past two weeks as a result of plunging trust after the collapse of investment banks in the United States spread to several large banks in Europe.
Governments will guarantee interbank loans with a payback of up to five years, according to a statement issued at the end of the meeting.
The arrangement will be "limited in amount" and "temporary", expiring at the end of 2009. Guarantees will be made "on appropriate commercial terms".
The second prong of attack is to shore up distressed banks with additional capital. "Appropriate means including recapitalisation" - in other words, a partial nationalisation - will be used.
The cost of the bailout remained unclear. "The time for decisions on a figure is tomorrow," said Sarkozy.
German Chancellor Angela Merkel cautioned that it was not a blank cheque.
"The capital that we are providing to banks comes with conditions, because taxpayers have the right to expect that if they are contributing to the stability of the financial system, this will be honoured."
"I believe that in the next few days, confidence in the banking system will be restored," British Prime Minister Gordon Brown said earlier.
To underscore unity, Brown was invited to Paris to confer with Sarkozy, even though Britain is not a member of the euro-zone.
Sarkozy reiterated a call for an international summit to address the causes of the crisis.
"We must convince our American friends of the need for an international summit to review the international financial system," said Sarkozy.
The burst of European resolve follows a patchwork response since the collapse of the US investment bank Lehman Brothers in mid-September.
Hesitation, backtracking and unilateral moves, triggered by Ireland, to guarantee national savings deposits made a mockery of EU declarations of unity. They contributed powerfully to last week's panic, in which European stock indices dived by 22 per cent.
Britain has announced it would set aside £250 billion ($712 billion) to guarantee loans, in addition to £200 billion in short-term lending and £50 billion to purchase stakes in troubled banks.
Germany's plan follows similar lines, according to press reports from Berlin. It is said to include up to ¬400 billion ($904 billion) in loan guarantees and as much as ¬100 billion in fresh capital for banks in return for equity.
France this week would push through a law to provide state guarantee for endangered banks, legislator Gilles Carrez, a member of the parliamentary finance committee, said.
What happens next will test the depths of the EU's pockets and be a crucial test of its decision-making structure.
On the monetary side, the euro is run by a single institution, the European Central Bank. But economic decisions are still determined at national level.
The Paris summit stressed that this is unchanged. Measures will be determined individually by governments.
Just as a hurricane will exploit any flaw in a house, any weaknesses could badly rebound on confidence if governments fail to respond fully and quickly.
