Europe desperately tries to halt inevitable collapse


Richard Moore

Germany clinches bank rescue deal

Germany’s finance ministry has agreed a 50bn euro ($70bn; £40bn) plan to save one of the country’s biggest banks.

The deal, reached with private banks, to save Hypo Real Estate is worth 15m euros more than the first rescue attempt, which fell apart on Saturday.

Germany earlier announced an unlimited guarantee for all private savings, and Denmark later followed suit.

The steps brought little comfort to Asian markets, where Tokyo’s Nikkei index tumbled 3.6% to a four-year low.

The South Korean currency also fell nearly 5%, hit by foreign currency shortages.

Monday saw the first session of the Asian markets since the US agreed a $700bn (£394bn) rescue plan for its beleaguered financial sector on Friday.

We tell all savings account holders that your deposits are safe. The federal government assures it 
Angela Merkel

The problems of Hypo Real Estate have put further strain on other financial institutions struggling against a crisis of confidence in the global financial system.

French giant BNP Paribas confirmed on Sunday night it had agreed to buy 75% of Belgium and Luxembourg holdings of the giant Fortis financial group.

The governments of Belgium and Luxembourg will in return take a minority stake in BNP Paribas. The Dutch arm of Fortis has been nationalised by the Netherlands government.

And the Icelandic government agreed measures for the country’s banks to sell off some foreign assets in a bid to shore up its entire financial system.

Iceland’s currency last week plummeted by a fifth against the dollar and the government was forced to bail out the country’s third largest bank, Glitnir.

‘Irresponsible behaviour’

Berlin’s finance ministry said it had acted to stop Hypo Real Estate’s collapse in order to avoid “incalculably large” damage to Germany and financial services providers in Europe.

European governments are as dazed and confused by the mayhem in the global banking system as most of the rest of us 
Robert Peston 
BBC business editor 

German Chancellor Angela Merkel said managers at financial institutions should be held accountable for “irresponsible behaviour”.

Earlier, she moved to reassure German savers all their deposits would be safe.

Similar unilateral guarantees issued by the Irish and Greek governments last week were criticised in Berlin and other European capitals.

But after an emergency meeting with the central bank, Ms Merkel said: “We tell all savings account holders that your deposits are safe. The federal government assures it.”
The BBC’s Tristana Moore in Berlin says Germany’s move will relieve investors and send an important message to the German public that banks will not be allowed to go under.

BBC business editor Robert Peston said the UK Treasury was attempting to clarify the details of Germany’s guarantee.
If the move does amount to blanket cover for all German savings deposits, other EU states – including the UK – would have to follow suit, says our correspondent.

Denmark’s government announced just after midnight it would also guarantee all deposits, after its banks agreed to pay into a liquidation fund to take over distressed banks.

Deposits in Danish banks have in the past been guaranteed up to 300,000 crowns ($55,000; £31,000).
The UK finance minister, Alistair Darling, has said he is ready to take “pretty big steps that we wouldn’t take in ordinary times” to help the British economy.

On Saturday, leaders of Europe’s four biggest economies – Germany, France, Britain and Italy – stopped short of a co-ordinated US-style bank bail-out but vowed to stabilise markets.
Story from BBC NEWS:
Published: 2008/10/06 03:53:52 GMT