Oct. 6 (Bloomberg) -- Chancellor Angela Merkel said private account holders will have their savings guaranteed as the German government sought to shore up confidence in the banking system while salvaging a bailout of Hypo Real Estate Holding AG.

``We want to tell savers that their deposits are safe,'' Merkel said at a press briefing in Berlin alongside Finance Minister Peer Steinbrueck yesterday. ``The government will vouch for that.''

Merkel made her pledge as the government worked on a new bailout package for Hypo Real Estate after the property lender said commercial banks withdrew support for a 35 billion euro ($48 billion) plan. The Finance Ministry, in a statement late yesterday, said the government had brokered a rescue deal worth 50 billion euros.

Merkel had no choice other than to offer the savings guarantee ``to avoid panic account transfers,'' Otto Bernhardt, finance spokesman in parliament for Merkel's Christian Democrats, said in an interview. ``People are nervous, angry. We don't want a run on the banks as we saw with Northern Rock. We don't want confidence in the system to fall any further.''

Consumer deposits, including the accounts of small, privately held businesses which make up the backbone of Europe's biggest economy, added up to 568 billion euros at the end of 2007, according to Finance Ministry spokesman Torsten Albig. Merkel proposed the guarantee at a meeting of European leaders in Paris on Oct. 4, he added.

`Whatever it Takes'

The German government commitment follows similar verbal pledges made by French President Nicolas Sarkozy and Italian Prime Minister Silvio Berlusconi, both of whom have promised to prevent losses for depositors in their countries.

U.K. Finance Minister Alistair Darling told the British Broadcasting Corp.'s Sunday AM program that Prime Minister Gordon Brown's government is ``ready to do whatever it takes'' to help support the banking system. The U.K. government took Northern Rock Plc into public control in February after depositors lined up to remove their savings in the first run on a British bank in more than a century.

Until now, private savings accounts in Germany, including those of smaller, privately held companies, have been guaranteed by 180 banks, the BDB private banks group said Oct. 2. German banks fulfill minimum guarantee levels set by the European Union and provide further security for unlimited amounts in agreements between themselves. The minimum guarantee covers 90 percent of an account's balance to a maximum of 20,000 euros, the BDB said.

`Important Signal'

``I want to emphasize that we are concerned that savers understand that they don't need to fear losing one single euro,'' Steinbrueck said yesterday. ``This is an important signal to promote calm and avoid a reaction that's out of proportion, making our crisis management and crisis prevention more difficult.''

No private account holder has lost money in a bank insolvency in Germany since the 1930s, Wolfgang Gerke, director of the Frankfurt School of Finance and Management, said in a telephone interview.

Merkel and Steinbrueck ``have offered psychological balm for worried savers,'' Gerke said. ``They're not writing the pledge in any law as Ireland has -- a sign that they're really relying on private bank guarantees.''

Irish Guarantee Law

Ireland's government on Oct. 2 signed legislation guaranteeing 100 percent of the deposits and debts of six banks. Banks in the U.K. say the Irish decision will distort competition just as authorities are struggling to cope with a seizure in global credit markets.

Neelie Kroes, the EU's top antitrust chief, said on Dutch television program ``Buitenhof'' yesterday that members of her staff were in Dublin on Oct. 3 and Oct. 4 and came back with ``cheerful reports'' that a few adjustments could be made to the Irish plan to satisfy competition rules.

The U.K. government brought forward proposals to raise the value of deposits it insures to 50,000 pounds ($88,500) from 35,000 pounds on Oct. 3 after Ireland's stronger guarantee prompted British savers to move funds abroad.

Merkel was among leaders of the EU's four largest economies who agreed in Paris Oct. 4 to bail out their own nation's banks ``when faced with a crisis,'' while coordinating with their counterparts, seeking a consensus approach to the credit crunch.

At the summit, the governments of Germany, France, Britain, Italy and Luxembourg, the European Central Bank and the European Commission also agreed to ease accounting rules, seek tougher financial regulations and weaken enforcement of competition and budget laws.

To contact the reporters on this story: Brian Parkin in Berlin at bparkin@bloomberg.net.

Last Updated: October 5, 2008 18:10 EDT