Germany denies considering tougher line on banks

21st July 2009, Comments 0 comments

The Sueddeutsche Zeitung daily had reported that Berlin was mulling such a move because of fears of a credit crunch in Europe's biggest economy later in the year.

Berlin -- Germany's finance ministry denied on Monday it was considering forcing the country's banks to accept public aid and partially nationalising them to jumpstart lending to cash-strapped firms.

The Sueddeutsche Zeitung daily had reported that Berlin was mulling such a move because of fears of a credit crunch in Europe's biggest economy later in the year.

The newspaper said that in exchange, the government was considering taking stakes in the banks along the lines of the partial nationalisations that have taken place in the United States and Britain.

"The federal government is not thinking about forced capitalisations," the finance ministry said in an emailed statement.

It added that with its 480-billion-euro (685-billion-dollar) banking rescue package rushed through parliament and the recent "bad bank" law, the state "offers banks a comprehensive range of stabilisation measures."

"Now it is up to the banks to make use of this where needed," it said.

The government has been highly critical of banks for being wary of lending money to firms starved of liquidity as they struggle to cope with Germany's worst recession since World War II.

Chancellor Angela Merkel warned in an interview broadcast on public television on Sunday evening that if there was no improvement she would "have a serious talk" with the banks.

Merkel said that the German government was in talks in Brussels about measures at European level to persuade banks to lend more, and that firms were sometimes too "meek" when it came to negotiating new loans.

To date, Germany has recapitalised two banks, property lending specialist Hypo Real Estate and the second biggest private German lender, Commerzbank.

German banks are heavily exposed to losses stemming from the international financial crisis and the collapse of the US market for high-risk, or subprime, mortgages.

Finance Minister Peer Steinbrueck told banks recently they must "extend credit to businesses under reasonable conditions," in a sharply worded letter sent to professional bodies in the financial sector.

He warned he would not be satisfied with "a simple call for good will" and has told sector leaders to attend a meeting to discuss the situation on September 1.

AFP/Expatica

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