Oct. 6 (Bloomberg) -- European governments struggled to coordinate their responses to the worsening financial crisis as stock markets tumbled worldwide, the euro fell and more nations moved to guarantee bank deposits.

``The first thing we have to try to do all together is to discuss, to coordinate and to find the necessary steps to re- establish stability'' in the markets, French Finance Minister Christine Lagarde said in Luxembourg today before a meeting of euro-area counterparts. ``Coordination between all of us is very important.''

Officials across Europe are rushing to secure banks on the brink of collapse as the global credit squeeze bears down on the continent. Europe's Dow Jones Stoxx 600 Index had its steepest intraday decline since 1987 today and the euro fell below $1.35 against the dollar for the first time in more than a year.

European Union leaders issued a statement today pledging to ``take whatever measures are necessary'' to protect banks and deposits. The leaders of the four biggest EU economies were unable to agree on a joint response at a meeting two days ago, pledging instead to work together to limit the economic fallout, ease accounting rules and seek tougher financial regulations.

``We should have a common approach, coordinated action to avoid unilateral decisions'' with negative repercussions, EU Monetary Affairs Commissioner Joaquin Almunia said as he arrived for the meeting of finance ministers in Luxembourg today. ``We should give confidence to depositors in our banks.''

Local Banks

Ireland last week approved a 400-billion euro ($540 billion) plan to protect deposits and borrowings of six local banks. The German government also said it would guarantee depositors' savings, while criticizing the Irish measure as distorting the European market.

``The Irish have opened a rescue umbrella that discriminates in the internal market, while the German approach aims to protect savers from losing even a single euro,'' German Deputy Finance Minister Joerg Asmussen said in Luxembourg. ``That's a non-discriminating approach.''

The European Central Bank today said the Irish government should have ``properly'' informed the EU before announcing the bank-guarantee plan. And EU Competition Commissioner Neelie Kroes asked Ireland to expand the measure to include non-Irish banks to comply with EU rules.

``My preference would be EU solutions, but that isn't realistic at this moment in how to tackle the problem,'' Kroes told a European Parliament panel in Brussels.

`Necessary Flexibility'

European Commission President Jose Barroso said today that EU rules will be applied ``with the necessary flexibility. But we do not need to change or suspend them.''

Amsterdam- and Brussels-based Fortis, Dexia SA, which is based in Brussels and Paris, and Hypo Real Estate Holding AG of Germany required lifelines this week to avoid collapse. U.K. Chancellor of the Exchequer Alistair Darling, who will join the Luxembourg meeting tomorrow, said the British government will continue to take all steps necessary to ensure the banking system remains stable.

``Governments are reacting like this because they need to be seen to be doing something,'' said Peter Dixon, an economist at Commerzbank AG in London. ``There's a lot of pressure and they may well come up with something, but it won't be a U.S.- style bailout.''

Credit Markets

The Stoxx 600 sank 7.6 percent to 241.5 today, the steepest retreat since October 1987. Europe's plunge helped erase about $2.5 trillion from global equities as investors disregarded the U.S. Treasury plan to revive credit markets with a $700 billion bank bailout.

``It's extremely important that European countries use similar principles in how they treat banks in problems, how they intervene, at what time they intervene,'' Dutch Finance Minister Wouter Bos said in Luxembourg today. ``We need to build a common position toward this difficult situation,'' Spain's Pedro Solbes said.

To contact the reporters on this story: Brian Swint in Luxembourg at bswint@bloomberg.net; Rainer Buergin in Luxembourg at rbuergin1@bloomberg.net.

Last Updated: October 6, 2008 14:15 EDT