European leaders hope to agree on a detailed plan in Paris today to prevent market panic and stave off what the International Monetary Fund (IMF) warned could be a global financial meltdown.
French President Nicolas Sarkozy will host an emergency Eurogroup meeting this afternoon to discuss European measures to tackle the global financial crisis.
French Economy Minister Christine Lagarde said that the summit of euro zone leaders would go beyond talking about remedies to "put meat, muscles on the bones of that skeleton and to develop, follow up and execute upon it."
Mr Sarkozy and German Chancellor Angela Merkel, meeting in France, said they had prepared a number of decisions to present to the meeting to try to restore normal flows in blocked credit markets.
The French cabinet early next week will study a plan to give state guarantees to a body extending debt to the country's banks, a parliamentary official said.
Mr Sarkozy will meet British Prime Minister Gordon Brown - whose country is not in the euro zone - European Central Bank President Jean-Claude Trichet and European Commission President Jose Manuel Barroso before the summit of euro zone leaders begins later this afternoon.
In an interview with Britain's Observer newspaper, Mr Brown said he will try to broker a Europe-wide bail-out of banks modelled on Britain's intervention, saying the "stakes could not be higher" for jobs, mortgages and the future of the economy.
In Britain, banks were in crisis talks with the government and regulators which could see the government take multi-billion-pound stakes in several lenders. Across the world, Australia and New Zealand announced they would guarantee bank deposits.
The IMF said it backed a plan by the Group of Seven leading industrialised nations to stabilise markets. It said bold action was needed to persuade banks to resume lending and bring an end to a spreading credit crunch that has pushed global stocks to five-year lows.
"Intensifying solvency concerns about a number of the largest U.S.-based and European financial institutions have pushed the global financial system to the brink of systemic meltdown," IMF chief Dominique Strauss-Kahn said.
In Washington, US President George W. Bush met G7 economic chiefs and officials from the IMF and World Bank over Friday and Saturday,. but they failed to agree on concrete measures to end the crisis.
"I'm confident that the world's major economies can overcome the challenges we face," Mr Bush said, adding that Washington was working as fast as possible to implement a $700 billion financial bailout package approved a week ago.
Last week, the Standard & Poor's 500 index tumbled more than 18 per cent - its worst week on record - while European stocks plunged 22 per cent and Tokyo's Nikkei crashed 24 percent on the week.
Co-ordinated interest-rate cuts from central banks failed to soothe investors' nerves and credit markets remained logjammed.
In London, big British banks were likely to announce their plans to recapitalise early on Monday, a source said. The banks were in talks with the government and regulators to determine how much capital each needs from £50 billion offered by Britain on Wednesday.
Media reports on Saturday said Germany was readying a rescue package that could be worth up to $549 billion, including the injection of equity capital worth "double digit" billions into its banks and guarantees for interbank lending.
Under Australia's plan, all deposits in the country's banks, building societies and credit unions, would be guaranteed by the Australian government for the next three years, Australian Prime Minister Kevin Rudd said. The government would also guarantee term wholesale funding to local banks until global financial markets stabilised.
In India, a major emerging market, mutual funds have asked the central bank to lend them short-term cash via a repurchase facility after the global crisis virtually paralysed the country's money markets, fund executives said.
In Dubai, the United Arab Emirates promised to protect banks from credit risks and guarantee bank deposits, the official WAM news agency said. The government of the Gulf Arab nation said it would pump sufficient liquidity into the system if needed and facilitate interbank lending.
Reuters