Germany to Guarantee Private Bank Accounts

Chancellor Angela Merkel tells reporters about the guarantee.
Chancellor Angela Merkel tells reporters about the guarantee. (Pascal Le Segretain - Getty Images)
By Craig Whitlock
Washington Post Foreign Service
Monday, October 6, 2008

BERLIN, Oct. 5 -- Chancellor Angela Merkel announced Sunday that Germany would guarantee all private bank accounts in an attempt to calm depositors as officials tried to resurrect a failed bailout plan for a blue-chip lender.

"We want to tell savers that their deposits are safe," Merkel told reporters at a hastily called news conference a day after she returned from an emergency summit of European leaders in Paris. "The government will vouch for that."

The German government's guarantee was prompted by the collapse of a $50 billion plan to rescue Hypo Real Estate, a large, commercial-property lender, after its liabilities were discovered to be worse than expected, German officials said.

The German Finance Ministry announced a new $69 billion rescue plan for the lender with a consortium of private banks. The government would provide $37 billion to the bailout, then twisted the arms of private bankers to come up with the bulk of the credit.

The new deal, the ministry said in a statement, would "strengthen the financial community of Germany in difficult times."

Hypo Real Estate offers financial services to property developers and local governments. But German authorities said they were concerned that word of the bank's troubles -- along with the failure of other banks in Europe and the United States -- could encourage anxious investors to withdraw their savings from other institutions.

The guarantee is similar to a move by Ireland last week to insure all bank deposits in that country by removing any limits on how much individual accounts are covered.

During the summit in Paris on Saturday, Merkel and other German officials had argued against a European-wide bailout fund for ailing banks, saying that it was up to each country to address its own problems.

Meanwhile, Interior Minister Wolfgang Schaeuble underscored how seriously officials in Berlin are taking the credit crisis, noting that the Nazis came to power after Germany was hammered by economic depression.

"We learned from the worldwide economic crisis of the 1920s that an economic crisis can result in an incredible threat for all of society," Schaeuble told the magazine Der Spiegel. "The consequences of that depression was Adolf Hitler and, indirectly, World War II and Auschwitz."

Elsewhere in Europe, the Belgian government announced Sunday that French banking giant BNP Paribas is to take a 75 percent stake in the remaining operations of troubled bank Fortis, according to the Associated Press. And in Denmark, the government agreed to guarantee all bank deposits, in a deal funded by commercial lenders, Bloomberg News reported.

© 2008 The Washington Post Company