Germany agrees bank rescue and guarantees savings
BERLIN (Reuters) - Germany acted to stem turmoil in its financial sector Sunday, thrashing out a new rescue for imperiled lender Hypo Real Estate and, in a surprise move, pledging to guarantee private savings accounts.
After German banks and insurers shocked the government on Saturday by withdrawing support for a government-led 35 billion euro ($48.50 billion) rescue for HRE, Berlin scrambled to hammer out a new deal before markets opened Monday.
Under an accord, struck just after 11 p.m. (5 p.m. EDT), the financial sector agreed to provide an extra 15 billion euros ($20.8 billion) in liquidity for HRE on top of the 35 billion they had already committed together with the Bundesbank, the Finance Ministry said.
"With this commonly forged solution, (Hypo Real Estate) will be stabilized and thereby the German financial marketplace strengthened in difficult times," the ministry said.
Earlier, the government said it had agreed to guarantee private deposits to help restore confidence amid the worst financial crisis since the 1930s.
"We say to savers that their deposits are safe," Chancellor Angela Merkel told a news conference in Berlin.
The move was a surprise because, behind the scenes, German officials had been highly critical of Ireland when it announced a similar move last week.
The change in approach reflected the fast-moving nature of the crisis, which spread across the Atlantic much quicker than many leaders in Europe had anticipated.
The Finance Ministry said the guarantee would cover more than 500 billion euros in 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," Finance Minister Peer Steinbrueck said.
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Earlier, Steinbrueck expressed exasperation at the management of HRE, which discovered new refinancing problems that made the 35 billion euro rescue agreed last week insufficient.
Banks that had agreed to shoulder 8.5 billion of that total balked when the new problems came to light, throwing the case back in the government's lap.
"The federal government refuses to be forced into some sort of shared responsibility by (HRE) or to put the entire burden of the risks on taxpayers," Steinbrueck said as talks between his ministry, the Bundesbank, financial regulator Bafin and financial institutions began.
With a market capitalization of about 1.5 billion euros, HRE is relatively small compared with other firms in Frankfurt's blue-chip DAX index of leading companies. Continued...
