INCOMING business secretary Peter Mandelson warned yesterday that the EU could be hit by a surge of “economic nationalism” after European governments enacted a series of unilateral moves to shore up their financial systems at the expense of other member states.

Mandelson, appointed to the Cabinet in a reshuffle on Friday, said in a newspaper interview that the decisions by Ireland and Greece last week to guarantee banks deposits held at domestic banks could “create distortions because some parts of the EU are guaranteed and some are not”.

The governments made the moves without consulting other member states. Some countries such as the UK have questioned the legality of the pledges and complained that the tactic could hurt the business of other banks if customers move their money en masse to state-protected rivals.

Mandelson, who returned to government after four years as the European trade commissioner, said: “The danger in this crisis is it may spark a new wave of economic nationalism, with each country looking for a ‘get-out-of-jail free’ card. People have to realise that selective or national approaches could lead markets to look to parts of the financial system in a distorted way.”

He held out hope for an EU plan akin to the $700 billion (£386 billion) US bailout. German chancellor Angela Merkel opposed the idea at talks among European leaders in Paris yesterday. Mandelson said: “These policy options need to be fully thought through internationally and implemented collectively if we are to avoid an ‘every-man-for-himself’ approach.”

His comments come amid unprecedented turmoil in the European financial sector as the crisis that began in America spreads across the continent.

Mandelson told The Sunday Telegraph: “The last year has seen the global economy move into an unsustainable position.

“In the last two weeks it has woken up to the gravity of the situation and the limitations on governments’ ability to reverse the situation. We are all coming to terms with depth of the crisis.”

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