Until recently, it seemed that Europe was managing to hold off the growing financial panic that has gripped the UK for the past year. But then came the decline of the Belgian bank Fortis, and now European leaders have been forced to come together in an attempt to avoid widespread economic chaos.

They did not manage to agree on a bailout package in the vein of the $700 billion rescue plan approved by American Congress last week, but have vowed to do whatever it takes to avoid any more struggling banks from going under.

Despite the leaders’ pledge to unite and fight the crunch, yesterday Germany joined with Ireland and Greece in guaranteeing 100% of the deposits held in banks. Later, the German chancellor went back on the promise, claiming it was a mere “political commitment” but the damage had already been done as Spain and Austria followed in making similar guarantees to depositors. This could prompt many customers to move their money, further destabilising the money market in Europe. 

Nicholas Sarkozy, the French President, has called for tougher regulations to be introduced in Europe, so that once the crisis subsides we will have “built the pillars of a new financial world”.

He also urged leaders to convene at a summit of G8 countries, including China, South Africa, India, Brazil, Mexico and Indonesia as soon as possible.