PARIS - EUROPEAN governments are guaranteeing savings to stop panicky depositors from pulling out their money and provoking a run on the already stricken banking system, analysts say.

They repeat reassurances to savers that their money is safe and the banks are solid, but each move by one government to insure deposits from risk raises pressure on others to do likewise.

Germany and Ireland have provided total protection, France has given a broad assurance that 'no saver will suffer", and British ministers are reportedly considering strengthening already increased guarantees.

'There is a need for a temporary blanket guarantee on all US deposits,' he said, arguing for a filtering of solvent banks from unsolvent ones that should be closed.

'Depositors are scared,' he said. 'A silent run on the commercial banks is underway.' A run on a bank, meaning a rush by depositors to withdraw their money, is one of the most catastrophic events any bank can face - the equivalent of sudden bleeding from the main artery.

Ireland acted 'to protect the stability of the domestic financial system,' central bank governor John Hurley said.

The decision angered Britain, because it incited people to move savings to Irish banks. German Chancellor Angela Merkel also objected, saying on Saturday that EU countries should not harm each other, only to change stance abruptly on Sunday.

Merkel declared: 'We tell all savings accounts holders that your deposits are safe.' The finance ministry put the value of insured accounts at 568 billion euros (S$1.125 trillion).

Britain has raised a guarantee from 90 per cent of 35,000 pounds (S$89,526) to all of 50,000 pounds, Sweden has doubled a guarantee to 51,000 euros 'to ensure savers continue to have confidence", and Greece has said that bank deposits are 'completely guaranteed'. Denmark and Spain also moved to increase deposit guarantees on Monday.

Dr Mark Duckenfield at the London School of Economics said: 'I think you can see that there is worry at the level of movement (of savings). They (governments) wouldn't be behaving as they are unless something were happening.' Another LSE economics professor, Dr Charles Goodheart, said: 'There is a great deal of fear, approaching panic in some cases, with people fearing for the safety of their money in banks.'

Dr Goodheart gave the example of a 'formerly fairly well-known footballer' who told him he had taken his money out of a building society 'and was carrying it around in a bag'.

The Financial Times Deutschland said: 'The growing fear must be confronted. The European states should issue a Europe-wide guarantee for their citizens' savings.'

German press comment recalled the collapse of the financial system and ruin of many Germans in the 1930s that helped usher the way for Nazism.

Berlin's daily Tagesspiegel said action by the government was 'in the interest of its citizens, the millions of German insurance clients, pensioners and small savings account holders' because 'a loss of trust is the end of everything'.

The Swiss newspaper SonntagsBlick has reported that people with accounts at top Swiss bank UBS, hard hit by the crisis, withdrew a net amount of 43.9 billion Swiss francs (S$56.1 billion) in the second quarter.

The financial system is already being strangled at the top because lending between banks had almost dried up despite massive infusions of cash from central banks. Savings deposits in various forms are the other vital source of cash for banks.

One perverse effect of deposit guarantees was that it undermined any joint European cooperation, Dr Goodheart said. 'What you're finding is a resurgence of nationalism with each country putting the interests of its own banks and depositors first.' Another implication was that the taxpayer would have to pay for any losses and that logically governments would therefore want much more control, for example through shares. Some banks might welcome this because they needed recapitalisation.

Dr Duckenfield said: 'They're trying to make it so that people don't create a run themselves just by fear. If you know you're savings are safe, you leave them in.' Such bank guarantees would work if they covered deposits of 40,000-50,000 euros, pounds or dollars, because few people had more than this.

In the United States, most bank deposits were federally guaranteed up to US$100,000, a practice since the Great Depression of the 1930s.

But even this practice may not have prevented depositors withdrawing huge sums from top US savings bank Washington Mutual, contributing to its near-collapse two weeks ago.

If widespread claims were made, the government would end up borrowing or paying through taxation, he said.

Dr Duckenfield and Dr Goodheart said that one 'perverse' effect of guarantees was an incentive to move money from non-guaranteed places.

Dr Duckenfield, a lecturer in the politics of the world economy, said that this could add to instability in an already distressed system.

A central factor from the start of the crisis was that policymakers had difficulty working out the transmission of such pressures through the system.

'We don't fully understand what our policy instruments are doing,' he said.