If not fixed, it's 'game over'. Can the global financial crisis be contained? The IMF 'strongly endorses' the G7's 5-point action plan to free up the flow of credit.

PARIS: Under intense pressure to throw banks battered by the worst financial crisis since the 1930s a lifeline before world markets reopen, European leaders raced against the clock to clinch a rescue strategy.

At a summit in Paris, the focus fixed firmly on how much state money governments could mobilise to buy into banks if needed, and if they would also underwrite lending between banks, paralysed for now by fear and distrust.

French President Nicolas Sarkozy said the meeting would come up with an "ambitious and coordinated plan" to tackle the crisis, which spread from the United States more than a year ago but hit fever pitch in recent weeks.

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 globe, Australia and New Zealand announced they would guarantee bank deposits.

The International Monetary Fund said it backed a five-point action 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 had pushed global stocks to five-year lows.





The plan states that the G7 would "take decisive action and use all available tools to support systemically important financial institutions and prevent their failure".

It added that G7 members would "take all necessary steps to unfreeze credit and money markets and ensure that banks and other financial institutions have broad access to liquidity and funding".



The IMF also said it was ready to lend to countries in need of capital in the financial crisis.

The fund's International Monetary and Financial Committee (IMFC) said it "considers that, using its emergency procedures, the fund stands ready to quickly make available substantial resources to help member countries cover financing needs".

"If market confidence is not restored this weekend, it's game over," said Marco Annunziata, chief economist for UniCredit, an Italian bank which is among many whose shares have been hurt in panic-stricken stock markets.



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 per cent on the week.

Coordinated interest-rate cuts by central banks failed to soothe investors' nerves and credit markets remained logjammed.

Money markets, less visible to the public, are essentially on life support and dependent on regular, massive injections of emergency liquidity from central banks across the globe, because banks themselves will not lend to each other as they used to.

The Paris meeting was hastily arranged by Sarkozy on the heels of a G7 summit in Washington.



British Prime Minister Gordon Brown, whose country had not adopted the euro , was invited to Paris because the euro zone wanted to possibly replicate something like the rescue plan announced in London last week.

Sarkozy and German leader Angela Merkel said they had prepared a number of solutions to try to restore normal flows in credit markets.



In an interview with Britain's Observer newspaper, Brown said he would 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 London, big British banks were likely to announce their plans to recapitalise early today , a source said.

The banks were in talks with the government and regulators to determine how much capital each needs from the STG50 billion (RM300 billion) offered by Britain on Wednesday. An announcement was expected before the market opened today, said the source, who declined to be identified.

The Sunday Times said Royal Bank of Scotland, HBOS, Lloyds TSB and Barclays could ask for a combined STG35 billion lifeline. Spokesmen for all four banks declined to comment.

The government could take seats on the boards of banks, a government source said.

The Sunday Times said the scale of the fund-raising could lead to trading at the London Stock Exchange being suspended to give the market time to digest the impact.



Media reports on Saturday said Germany was readying a rescue package that could be worth up to US$549 billion, including the injection of equity capital worth "double digit" billions into its banks.

Under Australia's plan, all deposits in the country's banks, building societies and credit unions, would be guaranteed by the government for the next three years, Prime Minister Kevin Rudd said. -- Agencies