Germany Drafts Plan to Shield Banking Sector
Tuesday, October 7, 2008
BERLIN, Oct. 6 -- German lawmakers said Monday that they were drawing up a massive intervention plan to protect the country's financial system as Europe's biggest economy braced for the possibility of more bank failures.
Authorities said they were rushing to finalize details of what they called "Plan B," a contingency measure designed to safeguard the overall German banking sector instead of just propping up banks on the verge of collapse.
Germany's disclosure of the new effort came after an extraordinary Sunday in which Chancellor Angela Merkel announced that the government would guarantee all private bank deposits held by individuals. Officials estimated the sum of such accounts at $800 billion to $1.5 trillion. German banks previously insured individual accounts up to the equivalent of about $27,000.
Although officials declined to provide details, Finance Minister Peer Steinbrueck said in a radio interview that the intent of the new plan is to "try to put an umbrella over all of Germany so we're not mixed up with one case after another." Later, at a news conference, he said that Germany's financial markets remained "highly dangerous" and added: "We are aware that we will not get very far with case-by-case solutions."
The situation reflected a sharp turn of events in Germany, where government and industry alike have long prided themselves on avoiding the kinds of economic risk and instability that plagued the country after World War I. Just 10 days ago, Steinbrueck had declared that Germany's financial sector was "extremely stable" and said the credit crisis was "primarily an American problem."
On Monday, German lawmakers continued to reject the idea of a Europe-wide bank bailout plan that is favored by some of its neighbors and would be similar to the rescue package approved by Congress last week.
Italian Prime Minister Silvio Berlusconi tried to revive a bailout proposal during a meeting with Merkel in Berlin. Before the talks, Berlusconi had said he was confident he could persuade German officials to agree to a plan under which all countries in the European Union would contribute up to 3 percent of their gross domestic products to a rescue fund.
Merkel, however, showed no signs of budging and said only that European countries should take a "coherent" approach by informing one another of their intended actions. Berlusconi told reporters that he would keep pressing the issue but expressed less optimism than he had earlier.
"I have proposed, and I am still convinced it would be the best thing, an umbrella, a common fund for all the 27 European countries, but it's difficult to reach this solution, and we are not there yet," he said.
For days, European leaders have been at loggerheads over whether they should craft a coordinated response to the global credit crisis or let individual countries fend for themselves.
Germany and Britain -- the two biggest economies in Europe -- have insisted that they can take care of their own problems. But the two governments have also groused that they were not consulted about unilateral measures taken by others, such as Ireland's decision last week to guarantee all bank deposits in that country.
Some economists said a Europe-wide bailout fund could be the most effective tool to ease credit problems for the continent's largest banks, which increasingly operate across borders. But Michael Heise, chief economist for Dresdner Bank in Frankfurt, said German politicians were unlikely to agree to a plan under which taxpayer funds might be used to rescue a bank in a neighboring country.