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German parliament approves $675 bn financial bailout

German parliament approves $675 bn financial bailout
AP
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First Published: Fri, Oct 17 2008. 04 29 PM IST
Updated: Fri, Oct 17 2008. 04 29 PM IST
Berlin: Germany’s lower house of parliament on Friday overwhelmingly approved a US$675 billion rescue package for the country’s financial markets, clearing the way for approval in the upper house later in the day.
“We hope that the law passed today will hinder the worst from happening to the financial markets,” said Peter Struck, parliamentary leader for the Social Democrats, which make up half of Chancellor Angela Merkel’s coalition government.
The German plan, approved Monday by Merkel’s Cabinet, is part of a coordinated European bailout effort in the face of nervous, volatile markets.
Earlier this week, Merkel warned the lower house that “the danger for financial market stability has not yet been banished.”
“We must, by approving this bill, as quickly as possible create the basis for calming the situation on the markets,” she said.
The German package foresees up to euro400 billion in lending guarantees for banks.
On top of that comes as much as euro80 billion to recapitalize banks and, if necessary, buy up risky assets; plus euro20 billion to back up the guarantees.
The sums are considered a maximum, and might not all be spent if the financial crisis eases.
Merkel has stressed that there will be “no payment without a trade-off.” Banks seeking capital help will have to comply with government-set conditions that could include limits on managers’ pay and directions on lending policy.
Lawmakers voted 476 in favor and 99 against the plan, with one abstention.
Ahead of the vote, leaders of the opposition Greens and Left Party said their members would cast their ballots against the package, while the pro-business Free Democrats said they would join Merkel’s governing coalition of Christian Democrats and Social Democrats in approving it.
It was also widely expected to pass the upper house where the government holds a wide majority. President Horst Koehler was then to sign it into law by the end of the day.
The package comes a day after Germany, Europe’s biggest economy, lowered its GDP growth estimate for 2009 by a full percentage point to 0.2% because of uncertainty in the world financial systems.
In the past week, Germany’s DAX index of the country’s 30 biggest companies has pitched through positive and negative closings, largely following Wall Street’s lead.
It closed down nearly 5% on Thursday, though was up some 3% early on Friday. The swings were primarily caused by financial stocks, as investors tried to assess what impact the rescue package might have and how large the economic fallout from the credit crisis would be.
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First Published: Fri, Oct 17 2008. 04 29 PM IST
More Topics: Germany | Meltdown | Economy | Bailout | EU |