BERLIN (Reuters) - The German government said yesterday it would guarantee private bank deposits as part of its response to the banking crisis, embracing an Irish approach that has angered some European countries.

"The state guarantees private deposits in Germany," Finance Ministry spokesman Torsten Albig said. A second ministry spokesman said the guarantee was unlimited.

"We say to savers that their deposits are safe," Chancellor Angela Merkel said at a news conference in Berlin. "The federal government is also committed to that."

Finance Minister Peer Steinbrueck said Germans should not have to worry about losing even one euro of their deposits.

"This is an important signal so that things calm down and excessive reactions are avoided that would make the current crisis tackling and prevention effort even harder," he said at the news conference with Merkel.

More than 500 billion euros in deposits would be covered, the Finance Ministry said.

Deutsche Bank, Germany's biggest lender, had no immediate response to the government's announcement. The German savings banks' association said deposits made by both firms and private individuals held by its members were already guaranteed.

Ireland was criticised by some European countries for promising to guarantee all deposits in Irish banks, prompting some depositors in Britain to move their savings over.

European Union Competition Commissioner Neelie Kroes said yesterday there was a discriminatory element to unlimited guarantees on bank deposits and she expected Ireland to modify its guarantee plans.

"We are now in close contact. My people were in Dublin on Friday and Saturday and returned with reports that changes will be made," Kroes told Dutch television, noting there was a "discrimination element" in a blanket guarantee.

"A guarantee without limits is not allowed ... (we expect) that it will be brought into a form for which we can together state that it is in line with the treaty," she said.

Peter Mandelson, EU trade commissioner until his appointment to British Prime Minister Gordon Brown's cabinet on Friday, said in a newspaper interview on Sunday that such action by Ireland and Greece could lead to market distortions.

Greece has moved towards guaranteeing all deposits but a senior official there has said it was more of a political commitment than a plan to change legislation that would require financial backing.