By Bertrand Benoit in Berlin and James Wilson in Berlin and agencies

Germany said on Sunday it would guarantee all private German bank accounts – currently worth €568bn – in a dramatic move to prevent panic withdrawals as fears over the worldwide financial crisis spread to Europe’s largest economy.

“We want to tell people that their savings are safe,” Angela Merkel, chancellor, said at an unscheduled press conference on Sunday. The scheme would cover existing accounts and others which savers might open.

German government officials also late on Sunday said the country’s commercial banks had agreed to inject an extra €15bn of liquidity into Hypo Real Estate, the ailing German mortgage and public sector lender, raising the bail-out agreed last week to €50bn, the largest since the outbreak of the financial crisis. The original rescue attempt had threatened to collapse after it emerged at the weekend that the full extent of Hypo’s funding gap had not been disclosed.

Berlin’s decision on savings – which followed controversial action by Ireland last week to guarantee the liabilities of six of its banks – will see the abolition of its current protection scheme, which guarantees 90 per cent of all bank deposits but only up to €20,000 per account.

The UK and France were trying on Sunday to learn details of the German plan, amid concerns other EU governments would have to follow Berlin’s lead and offer similar safeguards to savers, to avoid a cross-border flight of capital to more secure banks.

“We aren’t sure exactly what they’re proposing,” said one UK official, noting that there was annoyance that Ms Merkel had acted unilaterally only hours after attending an economic summit in Paris at which she agreed there should be greater cross-border co-ordination of measures during the economic crisis.

The Danish government early on Monday guaranteed all bank deposits in Denmark as part of a deal with banks to set up a Dkr35bn ($6.5bn) liquidation fund. Until now, deposits in Danish banks had been guaranteed up to DKr300,000.

Austria also quickly followed suit. Deposits there are currently guaranteed up to €20,000, but a finance ministry spokesman said on Monday it was not yet clear what the new limit would be.

At their weekend summit, leaders from France, Germany, Italy and the UK agreed not to let any large financial institution in their country fail, according to people familiar with the talks.

German officials said the move was agreed because of fear that the crisis at Hypo Real Estate would lead to widespread panic on Monday.

News of the German decision emerged as senior finance ministry officials were locked in talks in Berlin to hammer out a last-minute rescue of HRE.

Meanwhile, the Belgian government struck a deal with BNP Paribas, the French bank, to sell it a controlling stake in the remaining Fortis assets following the surprise nationalisation of Fortis’s Dutch banking and insurance businesses on Friday.

Geir Haarde, Iceland’s prime minister, said at a press conference on Sunday he hoped to announce at least a partial rescue package for his country’s banking sector before the opening of markets today. He declined to comment on the suggestion that Kaupthing might take over Landsbanki, its smaller rival. Mr Haarde and central bankers were also holding talks with pension funds and banks as the country looked overseas for funding.

On Sunday, the Italian bank UniCredit approved the raising of €6bn in new capital as it moved to shore up its defences against a sliding share price. The bank is set to tap its core shareholders for about €2.5bn convertible bonds, to scrap its cash dividend and to issue shares to investors instead, equivalent to issuing another €3.5bn in core capital.