LONDON, Oct 6, 2008 (AFP) - Prime Minister Gordon Brown convened an "economic war cabinet" Monday to grapple with how to protect ailing British banks after Germany raised the stakes in responding to the latest turmoil.
The newly-created National Economic Council gathered for its first meeting at Brown's Downing Street office, a day after Germany extended a blanket guarantee for all personal bank deposits to avert panic withdrawals.
Finance Minister Alistair Darling, under renewed pressure to extend such protection for savers here, is reportedly mulling using public funds to take stakes in banks to help bolster the financial system.
"We will do whatever it takes not only to stabilise the system but to help going forward, and that means perhaps some pretty big steps that we wouldn't take in ordinary times," Darling told the BBC Sunday.
Brown, who met his counterparts from France, Germany and Italy in Paris over the weekend, was set to telephone German Chancellor Angela Merkel later in the day, his spokesman said.
But Britain also questioned what exactly Germany had pledged to do.
"Our understanding of the situation is that the German government will not be bringing forward legislation for a legally-binding guarantee of bank deposits," the spokesman said.
Darling was to make a statement to lawmakers at 1:30 pm (1230 GMT) Monday amid speculation that he could match the German guarantee of unlimited private savings.
The creation of the National Economic Council, dubbed a "war cabinet" by the press, was announced among British measures to tackle the fast-moving financial crisis last week.
The sense of panic increased when the London stock market plunged over 6.0 percent to hit a four-year low on Monday, with banking stocks taking a beating.
According to media reports, the British government is considering shoring up ailing banks with billions of pounds (dollars) in public funds in return for taking a stake in them.
The plan is similar to one enacted by the Swedish government during its banking crisis in the 1990s and would offer taxpayers a chance of recouping some of their investment when the banks' fortunes improve.
On Sunday, the German government announced an additional 15 billion euro (20.4 billion dollar) guarantee for stricken bank Hypo Real Estate (HRE), which had already got guaranteed credits worth 35 billion euros.
But the wider guarantee for all bank deposits reportedly angered London, coming a day after talks in Paris Saturday between Brown, Merkel, France's Nicolas Sarkozy and Italy's Silvio Berlusconi.
They pledged a more coordinated approach to prevent the meltdown in US financial markets from engulfing their own economies but no specific joint action or rescue fund was agreed.
The Treasury said late Sunday it was still trying to work out the implications of the German move, which follows similar guarantees in Ireland and Greece, but opposition politicians said Britain would have to match it.
On Monday Brown's spokesman said: "We have been in the process of seeking clarification from Germany as to what they have committed themselves to."
British authorities have increased the level of private savings guaranteed from 35,000 pounds to 50,000 pounds (64,000 euros, 88,000 dollars) per person per bank, covering 98 percent of accounts and 60 percent of deposits.
German Finance Minister Peer Steinbrueck declined Monday to rule out an increase in a further state-backed guarantee for Hypo Real Estate after what is already the biggest financial bailout in the country's history.
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