Brussels - The European Union on Friday approved a Danish plan for restoring confidence to the country's financial sector, saying that it was the "most appropriate" response.

"The scheme would provide liquidity facilities for banks operating in Denmark and protect depositors and ordinary creditors in case of insolvency," the EU's executive body, the European Commission, said in a statement.

"The commission found the scheme to be compatible with EU state aid rules because it is the most appropriate means to address the risk of a severe disturbance in the Danish economy, while keeping potential distortions of competition to a minimum through effective safeguard mechanisms," the statement said.

On Wednesday Denmark proposed a package of measures including a guarantee on claims by depositors and ordinary creditors, and a legally established company to wind up banks that do not fulfil statutory solvency requirements and for which no viable private solution can be achieved.

The measures are aimed at restoring confidence in the banking sector, and are applicable to all banks in Denmark.

Since the beginning of the week, over a dozen EU states have offered various guarantees to private account holders and banks which need to borrow money in a desperate bid to restore confidence in the banking markets.

Under EU rules, the commission has to verify whether any government money paid to the private sector counts as state aid and whether that aid is fairly given. (dpa)