European leaders look for answers on financial crisis

The president of the European Commission said he was very hopeful that a meeting of European leaders Sunday would take an important step toward a coordinated response to the global financial crisis.

Some European officials said one of the proposals on the table would be governments guaranteeing interbank loans in order to unfreeze credit markets locked up by fear and uncertainty among lending institutions.

Such broads guarantees would follow the lead of Britain, which also has moved toward partial bank nationalization, another idea that could be taken up by the summit of 15 heads of countries that use the euro currency.

The conference will follow a meeting between French President Nicolas Sarkozy and British Prime Minister Gordon Brown.

"I am very hopeful that we will take an important step forward today by agreeing to a clear response for the euro area to the current crisis," European Commission President Jose Manuel Barroso said in a statement ahead of the summit. An "unprecedented level of coordination" is needed to make clear to both Europeans and the markets of the ability to act with a single voice, he said.

German Chancellor Angela Merkel, stressing the need for a "coherent, efficient and synchronized" response, said Saturday that a "common toolbox" could be the outcome of the summit.

Individual countries "could use these tools to respond to (their) particular situation," she said after a meeting outside Paris with French President Nicolas Sarkozy.

"We need a common approach in Europe, but we must be able to adapt to each national situation in a flexible way," she said.

Restoring confidence in the world economy, she said in an interview published Sunday in the German newspaper Bild am Sonntag, is the first reason a coordinated response is needed.

"Only an act of the state can bring back the needed trust," she said.

French Finance Minister Christine Lagarde has said that among the topics sure to be debated will be the possibility of states guaranteeing interbank loans to free up the credit markets, as Britain has done. Banks are currently fearful of making such loans for fear that they won't get their money back, and the lack of liquidity has paralyzed the financial system.

Both Merkel and Sarkozy stressed at a news conference Saturday that coordination is vital to taming the crisis and putting an end to the go-it-alone approach that has predominated thus far in Europe.

European Central Bank chief Jean-Claude Trichet and Eurogroup head Jean-Claude Juncker also were in attendance.

France, the urrent president of the European Union, and Germany have long been considered the motor of Europe's economy.

Decisions made by the euro nations could be enlarged later to include other members of the 27-nation EU.

Sarkozy and Merkel each rejected as out of the question any common financial rescue fund based on the U.S. model approved last week.

"The crisis demands extremely rapid responses" and a European fund "would pose gigantic problems" in decision-making among so many nations, Sarkozy said.

Merkel did not exclude support for banks seeking it, but said, in that case, conditions would be attached.

"One cannot talk of nationalization," she said, adding that nothing has yet been decided on the subject.

"We have not yet decided which tools will be set out (and) in which way," Merkel said. "There will be clarity on Monday."

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