EU tries to assure savers with plans to hike deposit guarantees

(LUXEMBOURG) - EU countries sought on Monday to assure people their savings are safe in the face of the credit financial crisis with plans to ramp up minimum bank deposit guarantees to as much as 100,000 euros (135,000 dollars).

Currently EU law requires member states to guarantee savers' deposits to at least 20,000 euros in case a bank goes bust, although some states offer much higher protection.

However, a growing number of states have rushed to lift the limit far above that in hope of restoring faith in the banking system, fuelling concerns about big discrepancies between European countries.

Spanish Finance Minister Pedro Solbes, as well as several diplomats, said that the European Commission would propose a sharp increase in the limit at a meeting of EU finance ministers in Luxembourg on Tuesday.

"I hope that there will be an agreement" among ministers from the 27 member states, Solbes told journalists.

After an exchange of views between eurozone ministers on Monday night, two European officials speaking on condition of anonymity said that the proposal could call for a minimum guarantee of as much as 100,000 euros.

After Germany offered a blanket guarantee on bank deposits on Sunday, Austria, Britain, Denmark, France, Portugal, Sweden indicated they had similar plans in the works.

Ireland triggered the rush last week with a law offering an unlimited guarantee on all deposits at its biggest banks.

"We see too much variety in Europe," lamented Dutch Finance Minister Wouter Bos. "We risk a race to the bottom, or a race to the top ... I don't think that is in Europe's interest."

Ireland stirred concerns in other EU countries that savers could flock to Ireland to park their savings in its banks after it passed the law offering an unlimited state guarantee.

After Germany at first criticised the Irish move, German deputy finance minister Joerg Asmussen defended Berlin about-face, saying it "differed profoundly" from Ireland's law, which he said was "discriminatory" because it did not cover foreign banks.

"The German move aims to avoid losses for savers. That's not discriminatory," he said.

In Brussels, EU Competition Commissioner Neelie Kroes, who is responsible for ensuring a level playing field between companies in Europe, said that "general guarantee protection retail deposits can be a legitimate response."

However, she also said: "There must be no discrimination based on nationality."

The German move upped the ante on finance ministers from other EU countries to come up with copy-cat measures in the absence of a Europe-wide approach.

"It is important that this guarantee is given to restore confidence in our financial systems," Portuguese Finance Minister Fernando Teixera Dos Santos said.

"The French presidency (of the EU) has brought forward various proposals. We will examine those proposals to see what proposals can command support in Europe," Irish Finance Minister Brian Lenihan said.

Economic and Financial Affairs Council (ECOFIN)