Sarkozy Calls Crisis Talks

Brussels is pressing for tough rules to protect EU banks from meltdown. The French president, Nicolas Sarkozy, has asked Britain, Germany and Italy for emergency talks, possibly this weekend in Paris, to discuss a European response to the crisis. He is rumored to be mulling over a proposal for a €300bn (£237bn) bail-out plan for EU banks.

José Manuel Barroso, president of the European commission, indicated he was in talks with Sarkozy about an EU approach to stricter regulation, revised rules on evaluating complex assets, improved guarantees for bank depositors and greater transparency on executive pay.

A controversial plan by Charlie McCreevy, the EU's single-market commissioner, to tighten up banking regulation would force the banks to retain 5% of any exotic instruments they develop on their own books to prevent them passing on toxic assets to other banks. It would also restrict a bank's lending to any other single bank to 25% of its capital base and introduce stricter regulation by a group of pan-European supervisors.

"I'm really trying to row back on what's been occurring," he said. "All the incentives have been to wrap up as many mortgages as possible, put them in a package and send them off to someone else - get rid of them to make more and more money."

Barroso also indicated he backed French proposals to make European "fair value" accounting standards more flexible amid substantial disquiet among European banks about the current system, which, they argue, forces them to write down their assets more than necessary and squeeze their capital.

McCreevy admitted it would be "devilishly" difficult to get all 27 countries to agree. He is proposing a "college" of supervisors that would be headed by the regulator in the bank's home country, who would be empowered to "break the Gordian knot" in the event of disagreements.