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EU nations try to avoid bank panic

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EU nations try to avoid bank panic

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As the impact of the crisis widens in Europe, an increasing number of governments are trying to reduce the risk of a run on banks. Denmark is the latest to guarantee all private deposits, as part of a deal with bankers for a multi-billion euro liquidation fund. This follows similar guarantees announced by Germany, Ireland and Greece. Analysts say many other countries are now expected to do the same.

Denmark’s Economic Affairs Minister says financial institutions have been too afraid to lend to each other, worried about who might be next to face problems. She says they can now trust each other, as no one will lose any money.

Germany’s announcement of a deposits guarantee came as a bombshell, only hours after Chancellor Angela Merkel had criticised the Irish move. But her government’s decision came as it faced a new battle to find a rescue deal for its troubled bank Hypo Real Estate.

Iceland has also announced a guarantee of bank deposits, and Austria and the UK are due to increase limits this week on the amount they will cover.