The leaders of Europe's most powerful economies agreed Saturday to stave off potential financial peril by backstopping their weakened banking system, but they stopped short of announcing a sweeping, U.S.-style bailout package.
Still, Germany, Britain, France and Italy pledged to work together as shrinking financial stocks continued to hammer European markets and credit shortages threatened to freeze up businesses across the continent.
Optimism over the European Union pledge, however, was dimmed by news that a US$48 billion plan to save one of Germany's top banking institutions had fallen apart Saturday.
Economic worries in Europe have been exacerbated by a difference of opinion on how best to combat the problems. Greece and Ireland have already broken with the rest of the EU and decided to shore up bank savings.
The leaders, who were in Paris Saturday at the behest of French President Nicolas Sarkozy, also called for an emergency meeting of the Group of Eight nations - which includes Canada - to coordinate a global response to what is now a worldwide crisis.
The urgent call for a G8 meeting underscores the growing threat of a deep global recession, but stands in stark contrast to comments by Conservative Leader Stephen Harper that Canada's economy will weather the economic storm.
While Harper maintains that Canada's banking system is secure, opposition leaders like the Liberals' Stephane Dion have accused Harper of having no plan to deal with the mounting economic threat.
The European agreement - which includes German Chancellor Angela Merkel, French President Nicolas Sarkozy, British Prime Minister Gordon Brown, and Italian Premier Silvio Berlusconi - comes a day after U.S. President George Bush signed into law a bi-partisan, US$700 billion package that aims to thaw freezing credit markets and kick-start a sputtering economy.
"We have to make sure Europe takes its responsibilities like the United States," said Dominique Strauss-Kahn, the head of the International Monetary Fund, on Saturday.
Over the past week alone, European countries have been forced to spend billions of dollars to ensure banks stay afloat.
Strauss-Kahn added that the financial plague, which began on Wall Street with toxic mortgage debt and has quickly spread to the world economy, amounts to "trial by fire" for Europe's money markets, which have grown increasingly interrelated over the past decade.
Recently, worry that evaporating credit would leave European banks unable to shoulder their debts led to a drop in share prices that has forced governments from London to Berlin to intervene with aid packages.
Worse, many European countries were already facing an economic slowdown leading up to the current crisis.
Though France initially wanted to dump funds into a European Union reserve for struggling banks, Germany's economic minister Michael Glos said in an interview with the Bild am Sonntag newspaper that banks themselves should take the lead in shoring up market confidence.
"In this situation, I don't think it's defensible to demand the state restore the trust that has been gambled away with large-scale debt write-offs using tax money," he said.
Wall Street's woes around the world
Meanwhile, British Prime Minister Gordon Brown has said that more attention should be given to the economy as a whole, including a US$21 billion contingency package for small businesses.
Still, Brown said at the Paris summit that creating stability should be paramount.
"People will be very clear that every country represented here today will want to do whatever is necessary to secure the stability of the system and to ensure the safety of hardworking families and businesses in each of our countries," Brown said.
Wall Street's troubles have also spread to Asia, where investors are reeling from falling stock prices and shrinking credit markets
In Hong Kong along for example, investments linked to Lehman Brothers, which filed for bankruptcy last month, were valued at around $2 billion.
In recent weeks, officials have fielded close to 4,000 calls from investors complaining about Lehman Brothers investments, The Associated Press reported.
Elaine Law, who dumped more than $70,000 of her family's savings with Lehman Brothers, said she could lose all of it.
"We were very confident about the market," said Law, 59.
"Who would have thought it would dive and a big bank like Lehman would collapse?"
With reports from The Associated Press
