German premier resigns after financial crisis strikes state

15th April 2008, Comments 0 comments

The premier of Saxony, Georg Milbradt, 63, announces his resignation after the subprime financial crisis rippling across the globe blew a hole in the budget of his eastern German state.


15th April 2008

Dresden - Milbradt, a senior figure in Germany's Christian Democratic Union (CDU), was the first German politician to be toppled by the crisis.

His state's bank, Sachsen LB, had to be sold last year to another bank after accumulating enormous liabilities from investing in so- called structured-finance products linked to US home mortgages.

The state remains liable for most of the Sachsen LB losses. Siegfried Jaschinski, chief of the bank's new owner, LBBW, said Sunday the "worst case" would be a claim of 1.2 billion euros (1.9 billion dollars) against the state, one of 16 making up Germany.

Milbradt said in the state capital Dresden he had decided to hand over the reins as premier and state CDU leader to a successor. He gave no precise retirement date, but indirectly said he would depart late next month.

He nominated the state's finance minister, Stanislaw Tillich, as his replacement, describing him as "a strong and experienced politician."

While a series of banking executives have lost their jobs for failing to understand the risks of structured finance, the impact in Germany has also been political because state-run banks tried to boost their earnings with risky, mortgage-linked US securities.

The head of the federal government bank KfW, Ingrid Matthaeus- Maier, 62, resigned last week amid outrage at a write down of 1.8 billion euros (2.8 billion dollars) to cover losses at its subsidiary Deutsche Industriebank IKB. She is a former national politician.

Saxony is the most industrially advanced of former communist eastern Germany's states, with a car and a semi-conductor industry that were lured there by state credit and tax rebates.

Milbradt, a former economist, has been premier since April 2002, after becoming state leader of the CDU in September 2001.

The state has set aside tax monies to cover the expected losses at the bank it no longer controls. Social Democrats, who have been part of his coalition since 2004, also criticized last week his private dealings with Sachsen LB when he was state finance minister.

Milbradt defended himself Monday, saying he had been forced to act "quickly and vigorously" last year when the crisis struck Sachsen LB.


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