BERLIN (Reuters) - German lawmakers approved a 500 billion euro ($673.8 billion) bank rescue package on Friday that Chancellor Angela Merkel hopes will restore confidence in a shaken financial system.
Both the Bundesrat upper house of parliament and the Bundestag lower house voted in support of the package. President Horst Koehler later signed the plan into law, allowing it to come into effect on Monday.
Speaking in the Bundesrat, Finance Minister Peer Steinbrueck said the package aimed to restore liquidity to the banking system that is essential for the proper functioning of the economy and defended his government’s handling of the crisis.
Germany had 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 worsened.
“In some judgments we may have been wrong and our timing was perhaps not perfect, but you can only make a judgment based on the information you have at the time,” Steinbrueck said. “And I maintain that the scope of this financial market crisis was not clear until deep into August or September.”
The German package mirrors those in other European states after an agreement at a euro-zone leaders summit on Sunday to proceed with coordinated national plans.
Although approval in the Bundestag was widely expected given the substantial majority the ruling parties have in the chamber, the government was forced to strike a compromise with Germany’s 16 states to ensure their support in the Bundesrat.
Under a deal struck on Thursday with the states, the federal government would take on 65 percent of the cost of losses arising from the package, and the states 35 percent. The cost to the states would be capped at 7.7 billion euros.
The package comprises up to 400 billion euros in bank guarantees to restore liquidity and as much as 100 billion euros in state funds for recapitalizing struggling financial institutions — sums that together almost equal Germany’s annual tax take.
No German bank has signaled publicly yet that it intends to make use of the funds.
Reporting by Paul Carrel and Noah Barkin, editing by Ron Askew and Victoria Main