WORLD> Europe
Germany agrees bank rescue and guarantees savings
(Agencies)
Updated: 2008-10-06 09:47

BERLIN -- Germany acted to stem turmoil in its financial sector on Sunday, thrashing out a new rescue for imperilled lender Hypo Real Estate and, in a surprise move, pledging to guarantee private savings accounts.

The logo of German lender Hypo Real Estate is pictured in Munich in this October 1, 2008 file picture. Officials from the German government, central bank and financial regulator met on Sunday, October 5, in an effort to save lender Hypo Real Estate after a Berlin-brokered deal to rescue the imperilled bank unravelled. [Agencies]

After German banks and insurers shocked the government on Saturday by withdrawing support for a government-led 35 billion euro ($48.50 billion) rescue for HRE, Berlin scrambled to hammer out a new deal before markets opened on Monday.

Under an accord, struck just after 11 pm (2100 GMT), the financial sector agreed to provide an extra 15 billion euros ($20.8 billion) in liquidity for HRE on top of the 35 billion they had already committed together with the Bundesbank, the Finance Ministry said.

"With this commonly forged solution, (Hypo Real Estate) will be stabilised and thereby the German financial marketplace strengthened in difficult times," the ministry said.

Earlier, the government said it had agreed to guarantee private deposits to help restore confidence amid the worst financial crisis since the 1930s.

"We say to savers that their deposits are safe," Chancellor Angela Merkel told a news conference in Berlin.

The move was a surprise because, behind the scenes, German officials had been highly critical of Ireland when it announced a similar move last week.

The change in approach reflected the fast-moving nature of the crisis, which spread across the Atlantic much quicker than many leaders in Europe had anticipated.

The Finance Ministry said the guarantee would cover more than 500 billion euros in deposits.

"This is an important signal so that things calm down and excessive reactions are avoided that would make the current crisis tackling and prevention effort even harder," Finance Minister Peer Steinbrueck said.

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Earlier, Steinbrueck expressed exasperation at the management of HRE, which discovered new refinancing problems that made the 35 billion euro rescue agreed last week insufficient.

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