Europe backs off of U.S.-style economic rescue plan

But EU leaders did agree to begin rewriting European accounting regulations later this month.

The leaders of Europe's largest economies on Saturday vowed to "respond with one voice" to the global financial crisis. But a one-day summit in Paris did not produce a $300 billion rescue plan, similar to the $700 billion US rescue plan, or any other far-reaching plans to reform Europe's struggling banking sector.

Instead, they chose a much more cautious approach.

France had suggested a multibillion-dollar European Union-wide government bailout plan, but backed off after Germany said banks must find their own way out.

Leaders did agree to begin rewriting European accounting regulations later this month in an effort to reduce the financial losses that banks are currently forced to write off.

They also agreed to propose a so-called "college of regulators" that would monitor international banks with locations in more than one European country.

"They were trying to stop public panic," says Gerhard Illing, research director at the Institute for Economic Studies in Munich. "From that standpoint, I was very encouraged by the meeting."

But leaders left unanswered questions on the extent to which European countries should guarantee bank deposits, and whether any limits should be placed on bank lending practices.

In Berlin, the German government held crisis talks after the collapse of a ballyhooed ¤35 billion (US$48.4 billion) bailout of Hypo Real Estate AG, the country's second-biggest property lender.

Hypo is the fourth major European bank to do so in a week.

The EU agreed last week to the privatization of Britain's eighth largest bank, Bradford and Bingley.

Up until now, the European strategy for dealing with the financial crisis has been to hope larger banks will rescue smaller failing ones.

Professor Illing says that it has only worked because the large banks have remained relatively stable.

"The key problem is that as soon as a couple of them fail there will be this domino effect, and even sound banks will be at risk."

Europe has taken a decidedly different tack in responding to the financial crisis. Whereas the US is now looking to pump in record amounts of money into the ailing economy, European leaders have focused more on appealing directly to consumers and telling them not to panic.

"The key difference is that the US is trying to stabilize the securities market," says Illing. "A purer way to help would be to try to recapitalize the sound banks and let the weak banks fail, which is what you've seen in the European response."

But governments across Europe were still scrambling Sunday for a response to the crisis.

Government officials and banking chiefs in Iceland were discussing a possible rescue plan for the country's overstretched commercial banks.

Belgian government and banking officials struggled to salvage the Belgian operations of Fortis NV, whose Dutch operations were nationalized amid fears they could go insolvent.

Options on the table include a Belgian move to buy the entire bank or to seek another bank to take over.

British treasury chief Alistair Darling said that he was ready to take "pretty big steps that [Britain] wouldn't take in ordinary times" to help the country weather the credit crunch.

Material from the Associated Press was used in this report.

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