A €24.5 billion (£21.8 billion) bailout of Eastern European banks was announced yesterday as efforts were stepped up to prevent the economic downturn causing a damaging East-West split on the Continent.

The funds will come from the European Bank of Reconstruction and Development (EBRD), the World Bank and the European Investment Bank (EIB).

The EBRD, set up to help former Iron Curtain countries to make the transition from communist rule, will be providing up to €6 billion for the financial sector in 2009-10. The EIB will commit €11 billion and the World Bank €7.5 billion.

The move came as European leaders prepared for a summit tomorrow called by the Czech Republic, which holds the rotating presidency of the European Union, to discuss protectionism after President Sarkozy suggested that French car-makers should relocate from Eastern Europe to France. It is thought, however, that the poor state of some former communist economies and their potentially negative impact on the single currency could dominate the meeting.

The EU injection fell far short of the €120 billion of fresh capital called for by Robert Zoellick, president of the World Bank. Ferenc Gyurcsány, the Hungarian Prime Minister, will tell Eastern European leaders tomorrow that he believes €180 billion is needed to bring the region’s banks and companies through the crisis.

In a sign of East-West tension, Donald Tusk, the Polish Prime Minister, said that larger Western economies could “start throwing the weaker passengers overboard” as the downturn deepens. This was seen as another criticism of the protectionist tendencies shown by France and Italy, where Mr Sarkozy, on a visit to see Silvio Berlusconi, the Italian Prime Minister, this week, said: “If the United States defends its industry, as it does, they are right. Maybe in Europe we can do the same.”

The smaller, newer EU countries, mainly in the East, are growing frustrated at the tendency towards protecting national industries in older, bigger countries. Car rescue plans have been proposed by France, Britain, Germany, Italy and Spain. Equally potent is the concern within the 16-nation eurozone about overexposure to Eastern economies. This is felt strongly in Austria, where half of the entire banking sector’s investments are in the Eastern region, but there are also significant worries in Italy, France, Belgium, Germany and Sweden.

Mr Zoellick has urged the EU to contribute further resources towards supporting Eastern economies, warning: “This is a time for Europe to come together to ensure that the achievements of the last 20 years are not lost because of an economic crisis that is rapidly turning into a human crisis.”

Standard & Poor’s, the credit ratings agency, said this week that “all the ingredients for a crisis are in place” in Eastern Europe because of rising government debt and a heavy reliance on foreign lending. It cut Latvia’s debt rating to junk status, forecasting another 10 per cent fall in its GDP.

The European Commission yesterday brought forward funding to boost Central and Eastern EU treasuries. A spokesman said: “Seven billion euros of structural funds will be front-loaded to member states, €2.3 billion more than initially planned.”

The Commission, which monitors state aid rules, also suggested that it was close to agreeing a French plan for €6 billion of state loans to its car-makers.

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