EU approves German banking rescue plan

29th October 2008, Comments 0 comments

The rescue package for German banks provides an example for other European states to follow, officials say.

Brussels -- The European Commission approved Germany's 470 billion euro (588 billion dollar) financial rescue package Tuesday, saying it does not violate European Union state aid rules.

"The package constitutes an adequate means to remedy a serious disturbance in the German economy while avoiding undue distortions of competition," said the bloc's executive arm.

Officials in Brussels noted that the German measures do not discriminate against foreign banks as they are limited in time and scope, which presents, "adequate safeguards to minimize distortions of competition."

"The commission -- considered that the measures are well designed and that interventions will be limited to what is necessary to achieve the recovery of the German financial sector," the commission said.

Companies that seek capital from the state must observe a dividend ban and cap their manager's salaries. Moreover, beneficiaries must maintain a high solvency ratio and must submit a restructuring plan within six months of any recapitalization.

Brussels has already cleared similar efforts made by Britain and Ireland to lessen the impact of the global credit crunch.

Approved by parliament earlier this month, the German package foresees up to 400 billion euros in inter-bank lending guarantees. This is combined with a 70 billion euro fund to recapitalize banks and eliminate their toxic assets.

The state’s acquisition of troubled assets from banks or insurance companies was done on condition that these assets are to be repurchased without loses after 36 months maximum.

Competition Commissioner, Neelie Kroes, hailed the German government's willingness to work with the commission to avoid possible violations of the EU treaty.

"The German rescue package is an efficient tool to boost market confidence, but at the same time is ring-fenced against abuses," Kroes said.

"I hope that other member states will soon follow course," the commissioner added.


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