Germany Considers Protecting Domestic Financial Industry

Germany has abandoned plans to address issues in its banking sector on a case-by-case basis and is now considering the possibility of protecting the domestic financial industry as a whole from harmful market upheavals.

In a speech on Monday, a day after the rescue plan for the German mortgage lender Hypo Real Estate (HRE) was announced and a federal guarantee for citizens’ savings deposits was revealed, German Minister Peer Steinbrueck stated that Berlin is working on a new plan to protect the German banking system as a whole."I am very much aware that at a certain point, individual solutions will no longer be sufficient," Steinbrueck said in remarks to reporters at his Social Democratic conference in Berlin.

He mentioned that officials are considering a ‘Plan B’, clearly stating that it will not represent a pan-European solution mirroring the $700 billion U.S. government bank rescue plan. In an earlier interview with German radio, Steinbrueck stated that Berlin is considering introducing protection for Germany as a whole, so that cases would not be resolved individually. Just last weekend, the German government advocated an ad hoc approach. Steinbrueck noted that new measures to secure savings deposits, taken despite Berlin officials criticizing a similar move by Ireland last week, aim to encourage investors.

"This was a signal from the Chancellor and me, so that savers understand they do not have to worry about their savings. This is important in this situation because we do not want frightened people to rush to their banks and withdraw deposits," he said, adding that this would only worsen the liquidity bottleneck. Concerns about the health of the European banking system have caused European stock indices to drop by 4.0 percent at the very start of this week’s stock trading. Shares of Hypo Real Estate plummeted by as much as 44 percent despite an agreement reached by banks and insurers on Sunday evening to provide an additional €15 billion in liquidity, on top of the €35 billion in aid for that bank agreed upon last week.  (H)