Euro-zone nations agree to temporarily guarantee bank refinancing

PARIS (AP) — Nations in Europe’s single-currency zone agreed Sunday to temporarily guarantee bank refinancing and pledged to prevent banks failing as part of a raft of emergency measures designed to get credit flowing again.

It was Europe’s most unified response so far to the global financial crisis and addresses a key part of the problem: banks’ reluctance to lend to each other. That has helped fuel the crisis that has pulled down some of Wall Street’s most storied names and is threatening the core of the U.S. and European economies.

After the Dow Jones industrial average ended its worst week in history, plummeting more than 18 percent last week, world leaders scrambled all weekend for a way to unblock money markets before they open today.

At an emergency summit of leaders of the 15 euro-zone countries in Paris on Sunday, European governments agreed to guarantee new bank debt until the end of 2009, allowed governments to help banks by buying preferred shares, and vowed to rescue important failing banks through emergency recapitalizion.

But it stopped short of a one-size-fits-all solution: It’s up to individual governments to announce how they will implement the measures.

“I want to tell our compatriots in all the countries of Europe that they can and should have confidence,” summit host French President Nicolas Sarkozy said.

Sarkozy hoped the momentum from Sunday’s meeting wouldn’t stop at Europe’s borders, and renewed his call for a summit of major world economies to help rebuild an international financial system “to make European ideas triumph.”

European Central Bank Chief Jean-Claude Trichet welcomed the unity of Europe’s leaders — but warned there is more work to do.

“The force of unity that we showed today is a fundamental element of confidence,” Trichet said.

But “there are still many things to do,” both by governments and central bankers, he added.