Europe fights fire bank by bank. Should it do more?

By Brian Love, European Economics Correspondent - Analysis

PARIS (Reuters) - European capitals dared hope just two weeks ago that banks on this side of the world could weather a financial crisis "Made in America," and that they would do so without recourse to public funds.

They were wrong, and the question now is whether after five rescue plans worth upwards of $100 billion (56 billion pounds) in the space of just two days, Europe should produce a masterplan, whatever the cost, to combat a confidence crisis, and do so at pan-European level.

German officials said on Tuesday they were not aware of any such plan so far, but President Nicolas Sarkozy is pressing for a meeting of European leaders, perhaps as early as Saturday.

Meanwhile, Ireland jumped the gun on Tuesday with a systemic plan of its own, guaranteeing with immediate effect all bank deposits, in a pledge that covers up to 400 billion euros (315 billion pounds) of liabilities, or more than twice the country's annual gross domestic product.

Daniel Gros, economist director of the Brussels-based Centre for European Policy Studies and president of San Paolo IMI Asset Management, believes governments have little alternative but to come up with a systemic response at a far wider level.

"In Europe, the basic issue is that banks rely on confidence and if confidence is impaired then you have a generalised risk for the system as a whole," he says.

"What they did not realise in Europe was that, even if we did not have the same problem, this lack of confidence could be just as dangerous for Europe as lots of toxic assets in the US."

POOLING RESOURCES?