Chancellor Alistair Darling tonight issued a sharp warning to European leaders not to risk worsening the economic crisis by taking unilateral action to protect their own banks and depositors.
As stock markets around the world continued to plummet, Mr Darling told the Commons it was essential EU governments acted in a co-ordinated fashion if they were to avoid simply passing on problems to other member states.
In London the FTSE 100 Index slumped almost 8% in its biggest one day points fall ever, while in New York the Dow Jones Industrial Average fell below the 10,000 mark for the first time in four years.
The FTSE 100 also recorded its lowest level for four years and its biggest percentage drop since Black Monday in October 1987.
Mr Darling's intervention came after the German, Danish and Greek governments became the latest countries to guarantee all depositors that their savings would be fully protected in the event of a bank collapse.
Following a similar move last week by the Irish government, it intensified pressure on the authorities in the UK - where deposits of up to £50,000 will be guaranteed from tomorrow - to follow suit.
Mr Darling said yesterday's surprise announcement by the German government had been a "political declaration" of intent rather than a "legally binding" guarantee for depositors.
Nevertheless, he made clear his irritation at the actions of Berlin, just the day after Chancellor Angela Merkel took part in an emergency summit in Paris intended to co-ordinate the European response.
"It does demonstrate the problems that arise when member states take unilateral action because of course it does have a knock on effect for other member states. It does emphasise the need for us all to work together," Mr Darling told MPs.
"I think that it is very important, otherwise we will end up with a situation that is confused not just to depositors, but to the institutions themselves."
With EU finance ministers due to meet tomorrow in Luxembourg, Mr Darling welcomed a joint statement by European leaders acknowledging the need for "close co-ordination and co-operation" in future interventions.
He again emphasised commitment of the UK authorities to do "whatever is necessary" to maintain stability.
The Bank of England will inject another £40 billion into the markets tomorrow, with such operations set to continue into November, while the Financial Services Authority is consulting on whether further to raise the guarantee for depositors.
With Mr Brown at his side, Mr Darling also confirmed the Government will publish the Banking Bill tomorrow giving the authorities additional powers to intervene in failing banks.
The Chancellor refused to be drawn on calls by the Tories and Liberal Democrats for the Government to take shares in the banks - effectively part-nationalising them - in order to provide them with new capital
He said that the Government would act "quickly and and decisively" when it had proposals to bring forward, warning that speculation - as happened after the initial publication of the US bail-out plan - could cause further instability.
"We have looked at what happened in the United States, nothing is worse than coming forward with a plan that isn't sufficiently developed, where questions cannot be answered," he said.
"That ended up with 1.5 trillion dollars being lost as a result of what was going on in the market over the ten days that followed."
He ruled out, however, a call by Liberal Democrat treasury spokesman Vince Cable to re-write the Bank of England's remit to enable it to slash interest rates in a bid to re-start the economy.
"I don't think that if you establish an independent central bank distant from government, that you should change its terms of reference just because times are difficult."
Comments