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European governments struggled to find a coordinated approach to the crisis sweeping financial markets, as Denmark became the latest country to guarantee bank deposits, putting more pressure on Britain and other countries to follow.

Denmark’s move came after a startling announcement by German Chancellor Angela Merkel on Sunday that her government would guarantee all private bank deposits held in the euro zone’s single largest economy. “We want to tell people that their savings are safe,” she said.

A sense of disarray has mounted amid government bailouts of several major banks in the past week and a worsening of the outlook for the wider economy. The Bank of England is expected by many to cut interest rates by at least a quarter point at its Thursday meeting, and European Central Bank President Jean-Claude Trichet gave a decidedly downbeat outlook on the countries using the euro at the bank’s meeting last week.

Austrian officials suggested they might join in guaranteeing deposits as well, and analysts said a failure by other authorities to offer a similar guarantee could risk a massive funds outflow from their countries’ coffers, while the guarantees themselves raised questions about their potential impact on government finances.

“Although the move to provide such guarantees is undoubtedly better than the highly destabilizing alternative, this will raise questions about how these guarantees would be funded were they to be called upon,” said Simon Derrick, an analyst at Bank of New York Mellon.

The markets are keeping a close eye on signs that Europe’s banking system is under pressure and the unraveling of a weekend pledge from the leaders of the four largest EU economies — France, Britain, Germany and Italy — in Paris that they would work in a coordinated manner to ensure the stability of the financial system.

European Union finance ministers were set to begin two days of talks on the crisis in Luxembourg.

“This is a very serious situation and one that needs to be addressed,” said EU spokesman Johannes Laitenberger.

“Obviously there is a great effort under way. Nobody is suggesting that this is business as usual, but it’s true that there is not one single magic bullet that will solve this.”

British Prime Minister Gordon Brown planned a call to Merkel to discuss the crisis, and Britain’s Treasury chief Alistair Darling was due to make a statement to Parliament later.

The weekend commitment to work together was blown apart Sunday when Germany’s Chancellor Angela Merkel announced that all 568 billion euros ($786 billion) worth of private deposits held in Germany will be guaranteed alongside a new 50 billion euros ($69 billion) bailout package for Hypo Real Estate AG, Germany’s second-biggest mortgage lender.

In response, the Danish Economy Ministry said commercial lenders had agreed to contribute up to 35 billion kroner, or about $6.4 billion, over two years to a fund that will help insure account holders from losses.

Meanwhile, Iceland halted trading in six bank stocks while the government drafted a crisis plan. Icelandic banks’ assets dwarfs the rest of its economy and its currency has fallen sharply in the past week.

Markets responded to the disarray by sinking rapidly, following selloffs in Asia. Russia shut down both its stock markets after they fell more than 15 percent.

“The EU is liable to be exposed as a fair weather construction, lacking the means of swift response and the hold over its citizens’ loyalties to survive really adverse conditions,” said Stephen Lewis, an analyst at Monument Securities.

Germany’s DAX was down 324.66 points, or 5.6 percent, at 5,472.32, while France’s CAC-40 was 244.69 points, or 6.0 percent, lower at 3,836.06. The FTSE 100 index of leading British shares was faring slightly better, down 165.09 points, or 3.4 percent, at 4,705.25.

Meanwhile, the euro slid below the $1.36 mark for the first time in over a year.

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