KEY POINTS:
PARIS - Europe's four biggest economies pledged stronger co-operation to stem the worst financial crisis since the 1930s at a summit in Paris yesterday, but failed to dispel undercurrents of tension and disorder.
The heads of Germany, Britain, France and Italy agreed to support solvent banks which found
themselves buffeted by the financial storm, promised to tighten controls over the financial sector and warned that the heads of failed banks would carry their share of the blame.
But beneath the rhetoric, key details were vague, highlighting the summit's urgent need to show unity after a disastrous week for European cohesion.
In the space of a few days, five European governments scrambled in piecemeal fashion to save several beleaguered banks at a cost of billions of euros, while Ireland unilaterally pledged to guarantee all deposits held by Irish banks.
Discord was crowned by a row when France reportedly proposed that European governments put together a massive support package that would act in tandem with the US$700 billion ($1 trillion) bailout for the US financial sector.
The scheme, said to entail commitments of more than ¬300 billion ($623 billion), was shot down by Britain and Germany.
"We jointly commit to ensure the soundness and stability of our banking and financial system and will take all the necessary measures to achieve this objective," a statement issued after the Paris summit said.
President Nicolas Sarkozy, after hosting a working dinner at the Elysee Palace, said the four had "agreed to make a solemn undertaking" to support banking and financial institutions. "Each government will operate with its own methods and means, but in a co-ordinated fashion," he said, adding: "In a way, we have devised a doctrine."
Also attending the meeting were British Prime Minister Gordon Brown, Chancellor Angela Merkel of Germany and Italian Premier Silvio Berlusconi, as well as European Commission President Jose Manuel Barroso, European Central Bank chief Jean-Claude Trichet and the chairman of the eurozone group of finance ministers, Jean-Claude Juncker.
Merkel quietly underscored her opposition to any Europe-wide mega-scheme of the kind that, according to off-the-record press briefings, Sarkozy had had in mind. "Each country must take its responsibilities at national level," she said.
She also swiped at Ireland, whose guarantees to bank deposits fuelled tension with other EU countries, which said the move could prompt investors to shift their funds to banks in Dublin. "It is important to act in a balanced way, and for countries not to cause harm to each other," she said.
The leaders said they envisaged tighter regulation over the banking sector and said poor managers in charge of distressed banks would not be rewarded for their ineptitude.
But they were tightlipped on how these goals would be achieved and whether they would apply at national level or EU level, or only among the Group of Eight (G8), of which Europe's "Big Four" are members. Previous attempts to introduce tougher EU-wide laws in the financial sectors have been blocked by Britain and Luxembourg, defending their banking industries. European economy and finance ministers meet tomorrow and Wednesday, ahead of an EU summit on October 15-16.
"We ... agreed to do far more to clean up the system where there has been irresponsibility and we agreed that we will set up a college of regulators," said Brown.
Executive bonuses, said Sarkozy, should be "revisited in order to avoid incentives for excessive risk-taking and to fight against what can be called short-termism".
The Paris summit also agreed to ask the European Investment Bank (EIB), the EU's lending arm, to make an early release of ¬32 billion in loans to small businesses - an unprecedented move that illustrates the reluctance of Europe's commercial banks to lend in the present panic.
The day before, the US House of Representatives voted for the bailout package, enabling the US$700 billion bill to be swiftly signed into law by President George W. Bush.
But relief in Europe was short-lived. During the summit itself, news broke that a bid to rescue Germany's second largest mortgage lender, Hypo Real Estate (HRE), had unravelled. The ¬35 billion deal had fallen apart after a German banking consortium, acting as a white knight, had refused to stump up lines of liquidity to let HRE stay in business. The lender said it would try to continue its operations through "alternative measures".
