The credit crunch looks to have claimed its first government after the Belgian Prime Minister proposed that the Cabinet resign after damning accusations that they tried to persuade judges not to block a bank break-up.

Yves Leterme admitted that one of his officials contacted an appeal court judge’s husband several times during a court case brought by shareholders trying to stop the sale of the collapsed Fortis bank’s Belgian assets to BNP Paribas of France. Jo Vandeurzen, Belgium's Justice Minister, offered to quit earlier in the afternoon.

The proposed resignations would mark the downfall of Europe’s unluckiest prime minister, who took nine months to form a coalition government in March because of hostilities between rival MPs, and who tried to resign in July but was turned down by Albert II, the King of the Belgians. The strain of coalition talks possibly led to the stomach ulcer that hospitalised Mr Leterme, 48, in February, and led to widespread fears that Belgium might break into two along linguistic lines between the Flemish north and French-speaking south.

The banking crisis has led to street demonstrations in Iceland calling for the resignation of Prime Minister Geir Haarde and led Latvian Prime Minister Ivars Godmanis to threaten to resign earlier this month as he argued for his economic recovery programme. But Mr Leterme would be the first premier to lose his job in the wake of the fierce downturn over the affair known as Fortisgate in Belgium.

“We have rarely seen anything like this in any country. The pillars of democratic power are accusing each other, almost mutually,” Deputy Prime Minister Laurette Onkelynx said on Thursday night, after an eight-hour crisis Cabinet meeting.

“Those who have done wrong must clearly take their responsibilities,” she added.

The Government is locked in a legal battle with minority shareholders of Fortis, a banking and insurance group, over the sale of its Belgian assets.

Fortis was hastily dismantled in October as its shares nose-dived, with the Dutch state taking over its Dutch banking and insurance assets and the Belgian government taking over its Belgian banking business. In an attempt to secure the long-term viability of Fortis and the Belgian banking system, Mr Leterme orchestrated the sale of most of the group's Belgian assets to BNP Paribas.

But in the case brought by shareholders, the appeal court ruled on December 12 that they should have been consulted on the break-up. It stopped the sale for 65 days, leading BNP Paribas to state that the deal could not go ahead at the moment.

Ghislain Londers, the supreme court president, sent a letter to the Speaker of parliament on Thursday that appeared to condemn Mr Leterme. “Everything was done so that the ruling of the ... Court of Appeal would not be given on the Fortis break-up,” it said.

Mr Leterme seemed to win the backing of his Cabinet after its marathon session which broke up at midnight on Thursday but finally threw in the towel after a damning report from the Supreme Court.

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