Europe Scrambles as the Credit Crisis Goes Global

Elsewhere, French bank BNP-Paribas said it was taking control of the Belgian and Luxembourg assets of finance and insurance group Fortis, less than a week after it was partially nationalized as part of a $16.4 billion rescue plan. The Dutch government had moved on Friday to nationalize fully the group's Dutch assets, including the bank ABN-Amro. As a consequence of its estimated $21 billion move for Fortis, BNP will be the largest commercial bank in Belgium — and the Belgian government becomes BNP's biggest shareholder.

As the prognosis seemed to worsen for Europe's banks, governments rushed to calm the public by promising new guarantees for their savings. On Sunday, Germany said it would back up all private savings deposits and many other savings schemes — a move that could cover some $785 billion but for which details are still sketchy.

Germany's action came just a day after Merkel had joined Sarkozy, Berlusconi and Brown in grumbling about a similar total savings guarantee announced last week by Ireland, which E.U. competition authorities had already pledged to challenge as a competition-distorting measure. But with Germany, Europe's largest economy, reversing its stand and taking that same route Sunday, Austria said it would follow suit — making it the fourth E.U. nation to guarantee private savings, along with Greece. Denmark and Sweden also raised the limits on savings they would guarantee, and by Monday, even British Finance Minister Alistair Darling was giving signals that Britain too might swap its current $88,000-per-person savings guarantee for blanket protection.

That flurry of action only served to heighten the panic across Europe, along with concerns that the European finance and banking sector may be as imperiled as that of the U.S., despite repeated assurances to the contrary from E.U. leaders. Indeed, the moves to guarantee private savings accounts seemed to spook market watchers into believing far worse was yet to come for Europe.

However, bearish traders should consider the alternatives. Despite budget-deficit restrictions and other rules applied to government members of the euro zone — and their often petulant submission to the European Central Bank 's currency and monetary policies — there is precious little to build on toward a harmonization of the E.U.'s finance sector. Regulation of banks and credit groups is still handled on the national level, and even national banks of euro-zone countries still have some decision-making power. Given that disunity, governments have little option beyond national action to stave off company meltdowns and any broader temptation to make a run on their banks.

That narrow scope for united action was duly noted during Saturday's minisummit in Paris. "Each government will operate with its own methods and means but in a coordinated manner," Sarkozy said of European reaction to the crisis. In saying that, he clearly didn't suspect that Merkel would issue a unilateral savings guarantee the next day. Still, Sarkozy and his fellow E.U. leaders also made it clear that it may now be too late to do much else but limit the extent of the damage in the current drama and await new global rules on finance and business ethics to be set to avert future calamities.

"We want to put down the foundations of a capitalism of the entrepreneur and not of the speculator," Sarkozy said in calling for an international summit to start a new postglobalization era of economics. "We want transparency, we want moralization. We want the creation of value. We want people to have confidence." All of which Europe wanted on Saturday and now sees diminished on Monday.

(See photos of the financial crisis here.)