Berlin: Germany was to unveil Monday a euro470 billion rescue package to save the country’s banks from collapse, government sources said, after European leaders hammered out a common approach at a high-stakes weekend summit.
Government sources in Europe’s biggest economy said that the package would include around $95 billion dollars in fresh capital for stricken banks and some $545 billion in guarantees for interbank lending.
The measures, in line with others being prepared by other European governments following Sunday’s emergency summit in Paris, were to be discussed by the cabinet from 1:00pm before they are outlined by Chancellor Angela Merkel at 3:00pm, the government said.
Finance Minister Peer Steinbrueck was then scheduled to give more details at 3:30pm.
In return for the capital injection the German state is expected to take stakes in the banks in a partial nationalisation similar to plans announced in Britain, which other eurozone countries also plan to copy.
Last week Berlin put together a euro50 billion rescue of Hypo Real Estate, the country’s fourth biggest bank, but this took the form of guaranteeing badly needed credit lines rather than the state taking a stake in the stricken commercial property lender.
Now though a drying up of the amount of liquidity held by German banks - as markets have tumbled in the past week and short-term lending has become even harder to secure - has forced a re-think in Berlin.
It has also became clear that the worst hit are not private German banks like Deutsche Bank but the Landebanks, the regional lending powerhouses that are owned by Germany’s 16 states, according to press reports.
Merkel has been at pains to stress, however, that the rescue package is not a blank cheque and that banks in future will face much tougher regulatory scrutiny.
Taxpayers “have the right to expect that if they are contributing to the stability of the financial system that this will be honoured,” Merkel said in Paris on Sunday.
By shoring up Germany’s banks, Merkel’s government is attempting not only to calm stock markets - Frankfurt’s DAX lost more than a fifth of its value last week - but also to stop panic bank withdrawals by consumers and to prevent the crisis spreading to other sectors of the economy.
“We are not doing it in the interest of the banks but in the interests of people,” Merkel told the Bild am Sonntag in comments published Sunday.