Europe’s finance ministers this afternoon agreed an EU-wide deposit guarantee for savers of €50,000.
That is the amount of consumers’ cash which will be protected in future if their bank crashes – but the figure is only half the amount many ministers wanted to fix as the threshold to calm markets as financial turmoil continues.
The move had been suggested by Ireland's Finance Minister Brian Lenihan during EU talks in Luxembourg to discuss the global financial crisis.
The European Commission had been calling for a co-ordinated approach to addressing the crisis, but in the absence of any agreement, individual governments were introducing their own measures to calm stock markets and rescue banks from collapse.
Ireland's move to offer a 100% deposit guarantee in Irish-owned institutions has caused anger among some other EU countries.
The move was agreed in Luxembourg as ministers vowed to step up cross-border co-operation in the face of banking chaos and issued a statement declaring: “The liquidity of the financial system shall be ensured by all authorities in order to preserve confidence and stability.”
The meeting began with a figure of €100,000 on the table as the level up to which savers’ investments would be guaranteed across 27 countries.
But that was seen as too high by some ministers – Sweden, for instance, has only just moved to a new domestic deposit protection level of €40,000.
This afternoon’s statement said all member states would “for an initial period of at least one year” provide deposit guarantee protection for individuals of at least €50,000, compared with the current EU figure of €20,000.
But it acknowledged that some countries will offer higher protection, and urged the European Commission to produce urgent proposals “to promote convergence of deposit guarantee schemes”.
The decision did little to demonstrate the new pledge of closer co-operation, and still leaves the risk of small investors switching their money to whichever bank in whichever EU country offers the highest protection threshold.
And the deal today does nothing to address corporate turmoil.
But the ministers set out a list of EU “common principles” to guide future European action in the markets, including “timely and temporary” market intervention, safeguarding the interests of taxpayers and the principle that governments should intervene in pay and bonus packages for money market chiefs heading failing finance houses: “The management should not retain undue benefits” said the statement.
Last night, EU Competition Commissioner Neelie Kroes warned Mr Lenihan that the terms of the bail-out may have to be watered down to win approval from Brussels.
Speaking in Dublin this morning, Taoiseach Brian Cowen reiterated his defence of the scheme, saying the Government had no choice but to act when it did.
He also said he was happy to co-operate with other countries to build on the decisions that have already been made.