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Germany may force state aid on banks

Frankfurt – Germany may force banks to take state aid to ward off a credit crunch later this year, the Suddeutsche Zeitung newspaper said on Monday.

In exchange, the state may take stakes in the banks, it added.

Until now, Chancellor Angela Merkel and Finance Minister Peer Steinbrueck have refused to force state aid on banks as was done in the United States and Britain.

But credit conditions for businesses and households have continued to deteriorate and tougher measures might be needed to ensure companies can obtain the loans they need to help Germany pull out of its recession, the report said.

The biggest European economy is expected to contract by six percent this year, marking its deepest recession since WWII.

To date, the government has recapitalised just two banks, property lending specialist Hypo Real Estate and the second biggest German bank, 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.

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.

The finance minister 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 1 September.

AFP / Expatica