German parliament passes bank bail-out law

October 17th, 2008 - 10:47 pm ICT by IANS  

Berlin, Oct 17 (DPA) In a one-day legislative marathon, Germany Friday adopted one of the world’s biggest bail-outs to inject 480 billion euros ($650 billion) into shaky banks.In barely seven hours, both chambers of parliament debated and passed the bill and German President Horst Koehler gave the bill his assent so it could be gazetted.

Two small opposition parties, the Left and the Greens, opposed the bill in the Bundestag chamber. The Bundesrat upper chamber, representing the 16 state governments, passed the bill unanimously.

The package aims at shoring up confidence in banks following weeks of share market turmoil.

Chancellor Angela Merkel unveiled the plan on Monday as part of a concerted effort by governments around the world to stabilize markets and to help troubled financial institutions limp through the crisis.

The current efforts differ from the $700-billion takeover of bad assets by Washington last month, since they aim to breathe life into world banks paralysed by a crisis that began as a crash in the US subprime mortgage market.

Germany’s rescue deal is the biggest, comprising 400 billion euros in guarantees, a 70-billion-euro fund and 10 billion euros of leeway. Berlin says it will need a credit of 100 billion euros to operate the bank-support scheme.

Senior officials have argued it is theoretically possible the rescue could turn a profit by charging fees for guarantees and earning dividends from banks brought under government control.

But economists say it is more likely governments will be left with irrecoverable losses.

“It’s a 500-billion-euro blank cheque,” said Greens caucus chief Renate Kuenast, attacking the bill before the Bundestag vote, in which 476 members supported Merkel’s government and 99 were opposed.

Legally, the bill becomes law Saturday, one day after it has been gazetted, or printed by the government printer in Bonn.

A government spokesman said the Merkel cabinet would pass regulations under the new law Monday.

Most of the eurozone nations and some allies including Britain have agreed to identical aid packages, each comprising a huge guarantee for interbank lending and semi-nationalisations of banks by state equity funds.

Germany has not identified which banks need rescuing, but the nine Landesbank companies owned by its states are seen as the weakest units. Two of them, WestLB and BayernLB, were hurt by investing in low-grade derivatives.

The law passed amid signs of an element of calm returning to European share markets after days of turbulence.

However rescue is unlikely to save Europe’s biggest economy from a sharp downturn as the financial crisis hits growth around the world.

In the run-up to the plan’s passage through parliament, the German government slashed on Thursday its 2009 economic growth forecast to a feeble 0.2 percent.

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