Governments across Europe scrambled to save failing banks on Sunday, working largely on their own a day after leaders of the continent's four biggest economies called for tighter regulation and coordinated response to the global meltdown. In Berlin, the German government held crisis talks after the collapse of a ballyhooed $48.4 billion bailout of Hypo Real Estate AG, the country's second biggest property lender. In Iceland – particularly hard hit by the credit crunch – government officials and banking chiefs 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 up 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 we wouldn't take in ordinary times” to help the country in weather the credit crunch. In the past year the government has acted to nationalize struggling mortgage lenders Northern Rock and Bradford & Bingley. Darling told the BBC that the government, which has provided billions of pounds in support to the banking sector, that it was “important to take generalized action as well as being ready to take particular action if you get a particular problem with an individual bank.” “The European banking industry is feeling the wind of default blowing from the other side of the Atlantic,” said Axel Pierron, senior vice president at Celent, a Boston, Massachusetts-based financial research and consulting firm. “The value of financial stocks has been eroding constantly for the last two weeks.” The erosion has also been seen in overall confidence and concern among investors, politicians and the European public, too. On Saturday, the leaders of Germany, France, Britain and Italy met to discuss the growing meltdown which has leapfrogged across the Atlantic from the US to Europe, but shied away from the massive $700 billion bailout passed by the US Congress a day earlier that President Bush signed into law. While Europe's four largest economies pledged to coordinate national responses to help banks in distress, their failure to agree an EU-wide plan showcased the divisions in Europe on how to deal with the crisis. France had suggested a multibillion-dollar EU-wide government bailout plan, but backed off after Germany said banks must find their own way out. That was telling, given crisis talks aimed at keeping Hypo Real Estate afloat. The firm said Saturday that the rescue plan had fallen apart after private lenders withdrew support, a key element to the proposal that had already been approved by the EU earlier this week. It was not known if the government, which planned to inject nearly $37.35 billion would raise its stake in the bailout package. Hypo was the first German blue chip to seek a government rescue after running into trouble in mid-September as credit froze on international markets. In Iceland – one of the countries most heavily exposed to the credit squeeze – government officials and banking chiefs were discussing a possible rescue plan for the country's overstretched commercial banks. Icelandic banks expanded rapidly after deregulation of the domestic financial market in the 1990s and now have combined foreign liabilities in excess of $138.34 billion – dwarfing the tiny country's gross domestic product of $19.37 billion. The government last week took over Iceland's third-largest bank, Glitnir, a decision that prompted major credit ratings agencies to downgrade both Iceland's four major banks and its government credit rating. Looming large was a growing sense that the continent's major central banks – which have been flooding euros and dollars to banks that have become increasingly stingy about lending money even to themselves – were ready to institute emergency cuts to their benchmark interest rates this week. None of the banks, including the European Central Bank and Bank of England, comment about rate hikes or cuts but analysts already believe the Bank of England, which meets this Thursday, will likely lower its rate from 5 percent. The ECB left its rate unchanged at 4.25 percent on Thursday, but opened the door to a rate cut.
