Europe strives to combat financial crisis in unison

By Francois Murphy and Jan Strupczewski

PARIS/LUXEMBOURG (Reuters) - European governments struggled on Monday to shelter banks and bank depositors from a global financial crisis that is eroding confidence, endangering the economy and challenging their ability to respond as one.

Germany promised blanket deposit protection for bank savers, prompting similar responses from Austria, Denmark and Sweden, days after Dublin took more draconian deposit insurance measures in a bid to restore confidence in the banking system.

French President Nicolas Sarkozy issued a statement in which the 27 European Union countries committed to do what was needed to counter market mayhem and ensure no savers lost any money. His country holds the EU's rotating presidency.

As the politicians busied themselves to prevent panic, banks were prominent losers as European shares suffered their worst one-day percentage fall on record on Monday, sinking to four-year closing lows.

Things moved so fast that Finance Minister Peer Steinbrueck pulled out of meeting with other euro zone ministers to work on a system-wide rescue plan for Germany, just hours after signing the second bailout in a week for a property finance group hard hit by the global credit crunch, Hypo Real Estate.

The euro zone ministers, meeting in Luxembourg, discussed the assurances on financial stability and bank solidity first given by the leaders of Germany, France, Britain and Italy after an emergency summit in Paris on Saturday.

European Central Bank chief Jean-Claude Trichet, present in Luxembourg, said the euro zone's central bank would continue to pump emergency funding liquidity into wholesale money markets to fight the paralysis caused by the credit squeeze.

"You can tell the citizens they can count on the ECB," he told a news conference.