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Germany adopts 500B euro bank rescue package

(Agencies)
Updated: 2008-10-14 17:33

BERLIN -- German Chancellor Angela Merkel's cabinet approved a banking rescue package worth up to 500 billion euros ($679.3 billion) on Monday, seeking to restore confidence and order to Germany's battered financial sector.

German Chancellor Angela Merkel holds a news conference after a meeting of her cabinet in Berlin, Germany, Monday, Oct. 13, 2008, focusing on the financial crisis. German leaders worked Monday to tie up a rescue package for their banking system. [Agencies]

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The package comprised up to 400 billion euros in bank guarantees and as much as 100 billion euros in state funds, sums that together almost equal Germany's annual tax take.

"Today we have established a first building block for new financial market conditions," Merkel told a news conference.

"We have one goal,  (the plan) should help to create new confidence, between banks, in the economy and among citizens."

Earlier the euro rose against the dollar on news the cabinet had approved the plan, which Merkel said should come into effect on Friday after parliament has passed it.

Germany's DAX leading share index also rose strongly on Monday after falling last week to a three-year low, and closed up 12 percent.

The country's state-backed, cooperative and commercial banks all welcomed the move, saying it would spur interbank lending and help stabilise financial markets. The top two lenders, Deutsche Bank and Commerzbank predicted it would help restore confidence in the banking system.

But banks were reluctant to say whether they would make use of the funds.

Germany initially pledged help for banks on a case-by-case basis, but changed course and decided to adopt a sector-wide plan after the financial crisis hit fever pitch last week.

Of the plan's 100 billion euros in state funds, a maximum of 80 billion euros would be available for recapitalisations and 20 billion euros was set aside as a provision for the guarantee offer.

"We think that is absolutely realistic," Finance Minister Peer Steinbrueck said of the 20 billion euros earmarked as a provision for the 400 billion euros guarantee.

"We in Germany are still not experiencing a credit crunch. But one cannot rule it out," he added at a news conference.

Steinbrueck said economic conditions in Germany, Europe's largest economy, would be worse next year than this. The economy contracted in the second quarter of 2008 and another contraction in the third quarter would put it in a technical recession.

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