Background: On Saturday Germany�s Chancellor Angela Merkel was in Paris with EU leaders from France, Italy and the UK where they called for concerted action to overcome the global financial crisis.
On Saturday Germany's Chancellor Angela Merkel was in Paris with EU leaders from France, Italy and the UK where they called for concerted action to overcome the global financial crisis.
They shied away from action on the scale of the massive $700bn (£395bn) financial bailout passed by US Congress on Friday and later signed into law by President George W Bush.
France suggested a multi-billion-euro EU-wide government bailout plan, but backed off after Germany said banks must find their own way out.
French President Nicolas Sarkozy's top adviser, Claude Gueant, insisted that a "common European plan" had come out of the summit.
"What is certain and what the citizens of France and Europe must know is that their (banking) establishments won't be left in difficulty," he said. However, if there was a plan no details of how it would operate were made public.
Less than 24 hours later Ms Merkel was back in Berlin surveying the wreckage of her six-day-old, 35bn (£27bn) intervention to collaborate with a consortium of German banks to save the country's second-biggest mortgage provider, Hypo Real Estate.
Having looked more closely at the stricken financial group's accounts, the banks decided its mounting liabilities were too great to save it.
The German Chancellor decided that, whether Hypo could be saved or not, her government had to act to ensure no citizen had fears for the safety of their investments.
Like the governments of Ireland and Greece, the German Federal Government announced it would guarantee all private deposits held in the country's banks.
Finance Ministry spokesman Torsten Albig said the unlimited guarantee covered some 568bn (£439bn) in savings and checking accounts as well as time deposits, or CDs.
On Friday the UK's Financial Services Authority announced it was raising cover from £35,000 to £50,000 for savers at banks. That move takes effect tomorrow.
It came, in part, in response to a flight of savings into banks covered by the Irish guarantee. However, the UK Government has resisted pressure to copy the Irish example.
Now that the Germans have followed Ireland's lead, Liberal Democrat leader Nick Clegg is urging Chancellor Alistair Darling to follow suit.
He said: "Germany is Europe's economic superpower. Where it leads, others are bound to follow.
"Ireland's action last week to guarantee all deposits made a common European approach to deposit guarantees necessary. Germany's decision today makes it completely unavoidable."
Mr Clegg did not, however, make any reference to the Irish link in Hypo's fresh difficulties.
The rescue consortium appears to have backed away after it discovered the scale of difficulties at Hypo's Dublin-based subsidiary Depfa Bank which it bought last October. The parent group found itself unable to refinance Depfa's operations which are focused on funding public works projects. The squeeze of Depfa got worse last month when the US investment bank Lehman Brothers filed for bankruptcy.
Deutsche Bank warned at the weekend the overall impact on Hypo could result in a shortfall of up to 50bn (£39bn) by the end of this year and of between 70bn (£54bn) and 100bn (£77bn) by the end of next year.
