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Germany unveils 480 billion euro bank rescue package

Latest update : 2008-10-14

The German Chancellor presented a rescue package that will provide 400 billion euros ($543.4 billion) in bank guarantees and a further 80 billion euros in state funds to recapitalise banks.


Germany unveiled Monday a 480-billion-euro rescue package to save its banks from collapse after European leaders hammered out a common approach at a high-stakes Paris summit at the weekend.
   
The finance ministry in Europe's biggest economy said the package included 80 billion euros (108 billion dollars) in fresh capital for stricken banks and some 400 billion euros (545 billion dollars) in loan guarantees.
   
The measures, in line with others being prepared by other European governments following Sunday's emergency summit in Paris, were approved on Monday by Chancellor Angela Merkel's cabinet.
   
Finance Minister Peer Steinbrueck was scheduled to give more details at 3:30 pm (1330 GMT) and the government hopes for the package to become law later this week.
   
"Without a functioning financial system the access of individuals and companies to credit is destroyed," the finance ministry said in a statement.
   
The proposals, hammered out in consultation with the German central bank, the financial regulator and representatives from the banks, are aimed at "stabilising the financial market, ensuring the supply of capital to the German economy and providing security for savers and investors," it said.
   
"Such unusual market conditions call for unusual measures," it said. "It is not just about protecting banks and other financial institutions but also about protecting citizens."
   
"The government is convinced that dealing with the current dangers takes priority, so that trust in our financial system can be assured," it added.
   
In return for the capital injection the German state is expected to take stakes in the banks in a partial nationalisation similar to plans announced in Britain, which other eurozone countries also plan to copy.
   
Berlin also wants to relax accounting rules so that banks can delay writing off the value of an asset on its books as soon as it falls, to improve regulation and to make managers more accountable.
   
Last week Berlin put together a 50-billion-euro rescue of Hypo Real Estate, the country's fourth biggest bank, but this took the form of guaranteeing badly needed credit lines rather than the state taking a stake in the stricken commercial property lender.
   
Now, however, a drying up of the amount of liquidity held by German banks -- as markets have tumbled in the past week and short-term lending has become even harder to secure -- has forced a re-think in Berlin and across Europe.
   
It has also become clear that the worst hit are not private German banks like Deutsche Bank but the Landebanks, the regional lending powerhouses that are owned by Germany's 16 states, according to press reports.
   
Merkel has been at pains to stress, however, that the rescue package is not a blank cheque and that banks in future will face much tougher regulatory scrutiny.
   
Taxpayers "have the right to expect that if they are contributing to the stability of the financial system that this will be honoured," Merkel said in Paris on Sunday.
   
By shoring up Germany's banks, Merkel's government is attempting not only to calm stock markets -- Frankfurt's DAX lost more than a fifth of its value last week -- but also to stop panic bank withdrawals by consumers and to prevent the crisis spreading to other sectors of the economy.
   
"We are not doing it in the interest of the banks but in the interests of people," Merkel was quoted as saying over the weekend.
  

Date created : 2008-10-13

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