Germany shattered any semblance of European unity on the global credit crisis last night by announcing that it was ready to guarantee €568 billion of personal savings in domestic accounts.

The move – which came as Berlin announced a new rescue package for an ailing mortgage bank – is sure to anger France, which, holding the European Union presidency, tried to create the illusion of a common front at a weekend summit in Paris. Instead, the message coming loud and clear from Berlin is that it is every man for himself. Or as President Nicolas Sarkozy would prefer not to say:sauve qui peut.

The massive liquidity crisis in the banking system has already nudged the Irish Republic and Greece into unilateral – and probably illegal under EU law – action to guarantee the deposits in national banks. Faced with a choice between the possible collapse of their banking systems and violating EU competition rules, the two countries opted for what they saw as the lesser evil. Now Germany, which at the weekend rejected French plans for an EU lifeboat fund, has taken the decisive protective step, and it is said to be plain that other European states will have to follow suit.

Early today the Danish Government guaranteed all bank deposits in Denmark as part of a deal with banks to set up a liquidation fund. There had been a ceiling on the guarantee.

Yesterday Peer Steinbrück, the German Finance Minister, said of his own country’s move: “This is an important signal to calm the situation and head off disproportionate reactions, and which would make our crisis management or crisis prevention even more difficult.”

Berlin insiders say that Angela Merkel, the German Chancellor, did not make a spur-of-the-moment decision but had been pondering the move since the Hypo Real Estate bank first ran into serious trouble. The Munich-based group is the second-largest commercial property lender in Germany and it seemed set to go down ten days ago, hit by the problems of its Irish subsidiary Depfa. Then the Government came up with €35 billion of liquidity to be provided by a consort-ium of banks and the Bundesbank, while banks and the Government would stump up €35 billion of credit guarantees. The alternative was to see the bank go down and suck the real economy into the maelstrom.

The new deal announced last night gives Hypo Real estate an additional €15 billion credit on top of the €35 billion. Of the extra credit €14 billion of that extra credit will be underwritten to 60 per cent by the commercial banks and 40 per cent by the Government. The hope is that this will be sufficient to head off a run on the bank.

But even before she went to the Paris summit to argue against a “Euro-tarp” – a troubled asset relief programme – or bailout plan, Mrs Merkel knew that matters were unravelling at home. The original rescue plan for Hypo Real Estate was clinched in a phone call eight days ago between her and Josef Ackermann, head of Deutsche Bank.

She persuaded him to tell Germany’s bankers to up their contribution to the rescue from €7 billion to €8.5 billion. She was determined that the Government should not shoulder all of the burden. But then Mr Ackermann reported back – the banks were willing to cough up only €3 billion for the rescue. Hypo Real Estate made matters worse by announcing that it had got its figures wrong – it could need as much as €100 billion by the end of next year and €20 billion by the end of the coming week.

Since then – more specifically since an allnight session of the Bundesbank on Thursday – she has known that she has to come out on behalf of the savers, the taxpayers and even more important the voters. Germany faces a general election next year and they will tip out any Government that is seen to be throwing their money at sinking banks or bungling its handling of the economy.

“We won’t allow the crisis in a single institution to become a crisis for the whole system,” the Chancellor said. The Germans will abolish the current limit guaranteeing 90 per cent of all bank deposits up to €20,000 per account – essentially the same measure taken by the Irish that triggered dismay from its partners, especially the British. The €20,000 sum is the lowest possible guarantee under EU law; other countries have higher limits.

The scope of the guarantee is huge. “It covers all savings deposits and private giro accounts, a total value of €568 billion,” Torsten Albig, spokesman for the Finance Minister, said.

The primary task of the Government is to stop a financial meltdown that destroys all consumer confidence in the economy. “People are asking: what is going to happen to my savings?” says Rüdiger Ditz, economics commentator of Der Spiegel. “Is an investment secure? And what is going to happen to us when there is no backbone to the system any more and the money just evaporates?” It is difficult to deal with the crisis using conventional political instruments, he says.

“It is about the loss of confidence of ordinary people, the fear of fear itself,” he says, “and nothing is more irritating than the massive capital flight of the Germans to supposedly safe havens such as Ireland.”

The underpinnings of Chancellor Merkel’s decision emerged in an interview with the Interior Minister, Wolfgang Schäuble. History had taught Germany, he said, that a sustained economic crisis created political havoc.

“We learnt from the worldwide economic crisis of the 1920s and 1930s that an economic crisis can result in an incredible threat for all of society,” he said. “The consequence of that depression was Adolf Hitler.” Only one thing trumps German anger at the perceived abuse of taxpayers’ money: the fear that the 1930s will return.

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