Germany agrees with 16 states on bank rescue
Germany moved a key step closer Thursday towards injecting 480 billion euros (650 billion dollars) into troubled banks, with its 16 states swinging behind the federal plan, reported dpa.
The accord, announced by Chancellor Angela Merkel, makes it feasible for the legislative package to become law Friday.
Most of the eurozone nations and some allies have agreed to identical aid packages, each comprising a huge guarantee for interbank lending and semi-nationalizations of banks by state equity funds.
Germany's rescue deal is the biggest, comprising 400 billion euros in guarantees, a 70-billion-euro fund and 10 billion euros of leeway.
Berlin says it will need a credit of 100 billion euros to operate the bank-support scheme, but the trading fund will earn interest and dividend income from banks it takes over. The ultimate net cost may be far less than the credit sum.
Finance Minister Peer Steinbrueck explained that when the final accounts were calculated after the rescue, the states would pay 35 per cent of the cost, or possibly receive 35 per cent of the profits if there were any.
State premiers said this was because the states, as proprietors of state banks, would have to sustain other losses in the crisis.
"It's a good outcome," said Juergen Ruettgers, premier of North Rhine Westphalia. Merkel called the deal "tenable."
Germany has not identified which of its banks need rescuing, but the nine landesbank companies owned by the states are seen as the weakest units. Two of them, WestLB and BayernLB, were hurt by investing in low-quality derivatives.
The cost burden on the states from the wider bail-out is to be limited to 7.7 billion euros, with the federal government to pay all higher bills, Steinbrueck said.
Government politicians said Germany would create a special agency for the bank rescue after the country's central bank said its independence would be compromised if it became an arm of government policy.
Instead of being a department of the Bundesbank, it would be a legally separate unit at the Bundesbank office in Frankfurt.
The Bundesbank, which is one of the principal central banks underpinning the European Central Bank in Frankfurt, had earlier told Berlin it did not want to be seen taking instructions from the German federal government.
To speed passage of the bill on Friday, votes are set to be held in the Bundestag lower chamber and the Bundesrat upper chamber on the same day.
In an unusual move, the bill is to be emailed back to the German government a few hundred metres away for the final formalities.
When the finance minister, chancellor and president have signed it, the government printer in Cologne will print 30,000 copies.