updated 10/7/2008 11:49:36 AM ET 2008-10-07T15:49:36

The European Union's 27 governments agreed Tuesday to guarantee private savings of up to 50,000 euros for one year and set guidelines on how each country could rescue a failing bank, finally taking a measure of coordinated action against the financial crisis after days of wrangling.

After going it alone in taking emergency steps to bail out banks and assure savers, European governments promised to talk daily in future and "ensure a comprehensive and coordinated response to the current situation," they said in a statement.

"We are not going to tolerate a Lehman Brothers scenario," said French Finance Minister Christine Lagarde, who led the talks, referring to the U.S. investment bank whose bankruptcy set off a chain of losses at other institutions.

But the EU failed to agree on a minimum bank guarantee of euro100,000 — five times the current EU minimum of euro20,000 — because some smaller and poorer nations feared they could not cover such an amount. Countries can, of course, go beyond the EU minimum and many already have.

EU governments have been trying to restore confidence after a series of government bank bailouts and a cascade of individual moves by countries to increase deposit guarantees, in some cases to 100 percent of deposits. Markets plunged Monday on fears a $700 billion bank bailout would not be enough. Banks have frozen lending to each other, while central banks have had to push short term credit into the banking system to keep it going. On Tuesday, the European Central Bank offered $50 billion for a second day in a row.

European stock markets rose after the U.S. Federal Reserve made a bold new guarantee to buy short-term commercial debt known as commercial paper in an attempt to unblock credit market. But British banks' share prices plunged as investors worried that the government was not doing enough to boost banks' balance sheets in the crisis. Shares at the Royal Bank of Scotland Group PLC, which had its credit rating downgraded by Standard & Poor's on Monday, plummeted by 39 percent in the first two hours of trading on the London Stock Exchange, before recovering somewhat.

Treasury chief Alistair Darling and Bank of England Governor Mervyn King reportedly met with the heads of Britain's biggest banks to discuss possible government plans to inject as much as 50 billion pounds ($87 billion) into the institutions.

Iceland nationalized its second-largest bank and the central bank fixed the exchange rate of the country's currency fight a financial meltdown in the tiny Nordic country, whose banking sector has grown to dwarf the domestic economy.

EU finance ministers emerged from talks with a set of seven "common principles" to guide them through the current turmoil. They include "timely" and "temporary" interventions bringing new management to ailing financial institutions and steps to protect the interests of both taxpayers and fair competition.

"Europe is determined to act in a coordinated manner in the face of this crisis," Lagarde said after chairing a one-day meeting of EU finance ministers.

European Union governments have avoided copying the U.S. with a massive bailout to buy up bad debt from banks and help unfreeze lending. The EU is hampered in taking unified action because while it boasts a single currency in 15 of its 27 member states nations — it has no legal powers to intervene in financial markets.

Instead, European national governments have pumped billions of euros (dollars) into ailing banks and organized takeovers or even nationalizations or struggling lenders.

In their statement, EU finance ministers committed "to take all necessary measures to enhance the soundness and stability of our banking system and to protect the deposits of individual savers."

Ireland started the ball rolling last week, promising a euro400-billion guarantee for all deposits in six Irish banks in an effort to stave off the collapse — and expensive government rescue — of lenders that overstretched themselves on property loans. Irish Finance Minister Brian Lenihan defended that Tuesday saying, "We must restore confidence to the European banking sector (but) there is not enough liquidity in the market. That's a problem we have to address," he said.

Germany, Britain and others have complained that Ireland's unilateral move broke EU level playing field rules by giving Irish banks an edge over competitors that would unfairly attract savers.

By allowing all EU nations to raise their savings deposit coverage to euro100,000 that level playing field has been restored, said Dutch Finance Minister Wouter Bos. He said the Netherlands would raise its coverage to euro100,000.

"This is a signal of confidence" in financial institutions, he told reporters. "It shows a united Europe."

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