Europe takes steps to stave off credit crisis

German Chancellor Angela Merkel (left) and Finance Minister Peer Steinbrueck speak to reporters in the Berlin Chancellery yesterday about their nation's financial condition. (Rainer Jensen/Associated Press/pool))

European nations scrambled yesterday to prevent a credit crisis from bringing down banks and alarming savers as troubles in financial markets spread around the world, accelerating economic downturns in major economies on three continents.

The German government moved to guarantee all private savings accounts in the country yesterday, hoping to reassure depositors who had grown nervous as efforts to bail out a large German lender and a major European financial company failed.

Late yesterday, it was disclosed that new bailouts had been arranged for both of those companies, Hypo Real Estate, the German lender, and Fortis, a banking and insurance company based in Belgium.

The spreading worries came days after the US Congress approved a $700 billion bailout package that officials had hoped would calm financial markets in the United States and overseas. Court hearings were also underway in New York over competing efforts by Citigroup and Wells Fargo to acquire Wachovia, a large bank that nearly failed.

The crisis appears to be the most serious facing Europe since a common currency, the euro, was created in 1999. Jean Pisani-Ferry, head of the Bruegel research group in Brussels, said Europe confronted "our first real financial crisis, and it's not just any crisis. It's a big one."

The European Central Bank has aggressively lent money to banks as the crisis has grown. It had resisted lowering interest rates, but signaled Thursday that it might cut rates soon. The extra money, aimed at ensuring that banks would have adequate access to cash, has not reassured savers or investors, and European stock markets have performed poorly.