10/06/2008
Germany became the latest country to move to allay fears about the financial meltdown, enhancing a rescue plan for Hypo Real Estate AG and guaranteeing private bank accounts as European governments scrambled on their own to save failing banks.
Chancellor Angela Merkel said Sunday that no citizen should fear for the safety of their investments. Hours later, her government announced a new bailout package totaling $50 billion ($69 billion) for Hypo Real Estate, Germany's second-biggest commercial property lender. Hypo said an original $35 billion ($48 billion) rescue plan fell apart after private lenders withdrew support, a key element to the proposal that had already been approved by the EU. The deal was on top of the guarantees of private accounts.
German Finance Ministry spokesman Torsten Albig said the unlimited guarantee covered some $568 billion ($785 billion) in savings and checking accounts as well as time deposits, or CDs. At the same time, Belgian Prime Minister Yves Leterme said that France's BNP Paribas SA had committed to taking a 75-percent stake in Fortis NV. Leterme said the Belgian and Luxembourg governments would, in turn, take a blocking minority share in BNP Paribas.
The deal came after two days of closed-door talks between the Paris-based bank, Fortis and government authorities in an effort to restore confidence in the company before markets open Monday. The thing does not stop: French banking giant BNP Paribas will take a 75 percent stake in the remaining operations of troubled bank Fortis NV, the Belgian government said.
Prime Minister Yves Leterme said the deal gives the Paris-based bank control of Fortis' Belgian and Luxembourg operations, including the bank's insurance and investment arms. The Belgium and Luxembourg governments also will receive a blocking minority share in BNP Paribas.
In Iceland, particularly hard-hit by the credit crunch, government officials and banking chiefs were discussing a possible rescue plan for the country's overstretched commercial banks. British treasury chief Alistair Darling said he was ready to take “pretty big steps that we wouldn't take in ordinary times” to help the country weather the credit crunch. In the past year the government has nationalized struggling mortgage lenders Northern Rock and Bradford & Bingley.
The erosion has also injured overall confidence and caused concern among investors, politicians and the European public. The leaders of Germany, France, Britain and Italy met Saturday to discuss the meltdown that has leapfrogged across the Atlantic from the U.S. to Europe, but shied away from action on the scale of the massive $700 billion bailout passed by the U.S. Congress on Friday and later signed into law by President George W. Bush.
Their failure to agree to an EU-wide plan showcased the divisions in Europe on how to deal with the crisis. France had suggested a multibillion-euro (multibillion-dollar) EU-wide government bailout plan, but backed off after Germany said banks must find their own way out. French President Nicolas Sarkozy's top adviser, Claude Gueant, insisted that a “common European plan” had come out of the summit. “What is certain and what the citizens of France and Europe must know is that their banking establishments won't be left in difficulty,'' he told Europe-1 radio on Sunday.
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