Meltdown Monday as shares plummet

7:28am Tuesday 7th October 2008

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CHANCELLOR Alistair Darling last night issued a desperate appeal to European leaders not to risk worsening the economic crisis by taking unilateral action to protect their own banks and depositors.

His call came after more than £93bn was wiped from the value of the UK’s biggest companies as London’s FTSE 100 suffered its biggest fall for more than 20 years.

As fear swept global markets and governments rushed to prop up banks across Europe, the Footsie slumped 7.8 per cent – its largest one-day percentage decline since the aftermath of Black Monday in October 1987.

The index closed 391.1 points lower at 4589.2 – its lowest close total since October 2004 – as investors were rocked by the latest turmoil in the European banking sector.

In the US, Wall Street’s Dow Jones Industrial Average traded below the 10,000 mark for the first time in more than three years.

CMC Markets analyst James Hughes said: “I’ve never seen anything like this.

“What we are seeing over the past few weeks is a once-in-a-lifetime event.”

Mr Darling told the Commons it was essential EU governments acted in a coordinated fashion if they were to avoid simply passing on problems to other member states. His intervention came after the German, Danish and Greek governments became the latest countries to guarantee all depositors that their savings would be fully protected in the event of a bank collapse.

Following a similar move last week by the Irish government, it intensified pressure on the authorities in the UK – where deposits of up to £50,000 will be guaranteed from today – to follow suit.

Mr Darling said Sunday’s surprise announcement by the German government had been a “political declaration” of intent rather than a “legally binding” guarantee for depositors.

Nevertheless, he made clear his irritation at the actions of Berlin, only the day after Chancellor Angela Merkel took part in an emergency summit in Paris intended to co-ordinate Europe’s response.

“It does demonstrate the problems that arise when member states take unilateral action because of course it does have a knock on effect for other member states. It does emphasise the need for us all to work together,” Mr Darling told MPs.

With EU finance ministers due to meet today in Luxembourg, Mr Darling welcomed a joint statement by European leaders acknowledging the need for “close co-ordination and co-operation” in future interventions. He again emphasised commitment of the UK authorities to do “whatever is necessary” to maintain stability.

The Bank of England will inject another £40bn into the markets today, with such operations set to continue into November, while the Financial Services Authority is consulting on whether further to raise the guarantee for depositors.

With Mr Brown at his side, Mr Darling also confirmed the Government would publish the Banking Bill today giving the authorities additional powers to intervene in failing banks.