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Business Europe

Berlin to adopt forced bank nationalisation law

Latest update : 2009-02-18

Germany temporarily allowed the nationalisation of troubled banks in a "last resort" move to expropriate shareholders that will end on June 30. It should pave the way to nationalise struggling property lender Hypo Real Estate.

AFP - The German government is set to adopt a law allowing it to temporarily nationalise troubled banks through the seizure of shares, according to a draft text obtained by AFP Wednesday.

"The possibility to launch an expropriation procedure ends on June 30, 2009. Nationalisation is a last resort," says the draft, to be finalised in a cabinet meeting later Wednesday.

The law is seen paving the way for the total nationalisation of stricken Germany property lender Hypo Real Estate (HRE), which would be the first time in modern German history the state has taken control of a bank.

Nationalising banks "is only permissible when there are no other reasonable legal and economic solutions available to safeguard financial market stability," the draft adds.

"The banking crisis has expanded into an acute crisis of the financial system. In this crisis situation, it is the fundamental duty of the state to restore trust in the financial markets and to prevent a further deterioration of the crisis," the document says.

HRE has soaked up more than 100 billion euros (126 billion dollars) in public aid since October, half of it in public loan guarantees, but its future still depends on the state becoming a major shareholder.

The government fears an HRE bankruptcy could have a devastating knock-on effect in Germany, possibly even in Europe, similar to that caused by the collapse of US investment bank Lehman Brothers in September.

In addition to its real-estate activities, HRE plays a major role in the issuance of "Pfandbriefe," bonds in which small investors, savings banks and insurance companies have placed large sums.

However, the concept of seizing assets from troubled companies is hotly disputed in Germany for historical reasons.

The idea is linked to Nazi seizures of Jewish property in the 1930s and East German confiscation of private business after World War II.

But as the crisis shows no sign of ending, the nationalisation of major banks -- previously unthinkable -- is becoming increasingly seen as a palatable option in the face of the ongoing financial sector chaos.

Banks have already been nationalised in Britain and Ireland.

And the former chairman of the US Federal Reserve, Alan Greenspan, said Tuesday in interview with the Financial Times that the US government may have to temporarily nationalise the country's banks until the sector is reformed.
 

Date created : 2009-02-18

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