French President Nicolas Sarkozy, left, EU Commission President Jose Manuel Barroso, centre, and European Central Bank chief Jean-Claude Trichet appear after a summit at the Elysée Palace in Paris, on Sunday. ((Remy de la Mauviniere/Associated Press))

Struggling to contain a credit crisis. European countries have reached a deal to guarantee future loans among private banks and Washington is set to buy ownership stakes in a broad array of American banks.

The Associated Press reported Sunday that a draft declaration by the 15 eurozone governments says they will guarantee new loans between private institutions for five years.

The governments — representing the countries that use the euro — were meeting in Paris to work on a co-ordinated response to the global financial crisis.

In Washington, U.S. Treasury Secretary Henry Paulson said late Friday the government will buy stock in U.S. financial firms to help them raise desperately needed money.

Earlier last week, the British government said it will spend up to 50 billion pounds ($97 billion) to buy shares of major British banks.

Like the Americans and the British, the Europeans hope to unlock credit markets. Banks have been reluctant to lend to each other out of fear of losses. With the guarantee, the eurozone leaders are hoping the banks will start lending again.

French President Nicolas Sarkozy included British Prime Minister Gordon Brown in Sunday's meeting, even though Britain does not use the euro.


Sarkozy, left, and Britain's Prime Minister Gordon Brown at the Elysee palace in Paris, on Sunday. ((Remy de la Mauviniere/Associated Press))

Analysts said the eurozone countries are interested in the British rescue as a potential model for their plan.

Last week, Brown said the Bank of England will double its emergency loans to banks to £200 billion, while the Treasury will offer £250 billion to underwrite banks' loans.

Another $100 billion £50 billion will be available to boost banks' balance sheets in order to unfreeze credit markets, locked up by uncertainty among lending institutions. Most of the money would be used to partly nationalize four large banks.

Sarkozy expects solutions

Sarkozy said he expected "an ambitious and co-ordinated plan that will bring solutions."

The British government is set to announce the bank bailout on Monday, the London Sunday Times has reported. The newspaper said that in return for the lifeline, the government would take controlling stakes in Barclays, Lloyds TSB, the Halifax Bank of Scotland (HBOS) and the Royal Bank of Scotland.

Government representatives would be installed on their boards, both the Sunday Times and Sunday Telegraph newspapers reported.

On Saturday, the head of the International Monetary Fund warned that the world financial system is teetering on the "brink of systemic meltdown."

Dominique Strauss-Kahn said the private sector in wealthy countries has so far failed to restore confidence, and what is needed is government intervention, "which is clear, comprehensive and co-operative among countries."

Strauss-Kahn was speaking in Washington after talks with U.S. President George W. Bush, G7 finance ministers and the World Bank.

Earlier, G7 ministers released the five-point plan to protect major banks and prevent their failure. They pledged to work to get credit flowing more freely again, support the efforts of banks to raise money from both public and private sources, safeguard bank depositors and revive the battered mortgage financing market.

In Canada, the federal government announced last week that the Canada Housing and Mortgage Corp. will be buying $25-billion worth of CHMC-insured residential mortgages.

With files from the Associated Press