Germany readies legislation for its part in G7 bailout

October 12th, 2008 - 12:39 am ICT by IANS  

Berlin, Oct 11 (DPA) Germany is to rush through legislation in the new week to recapitalise its banks with a vast cash injection of up to 100 billion euros ($140 billion), according to media reports Saturday.Chancellor Angela Merkel has said she will sign off with euro zone leaders Sunday on the extraordinary bail-out before announcing details.

The website of the German business newspaper Handelsblatt said her cabinet would vote through the plan Monday.

They quoted a government official saying: “The objective is to pass the necessary laws as soon as possible so the markets calm.”

The bail-out was decided by G7 (Group of Seven) finance ministers Friday in Washington. Germany, which tried to sit out the crisis, changed its mind about intervention after last week’s market crash.

Handelsblatt quoted a German delegation source in Washington saying extra liquidity would be pumped into German banks and government guarantees would be offered as a backstop, while the sum of 100 billion euros at the most was tagged as an equity injection.

The news magazine Der Spiegel quoted “government experts” saying between 50 billion and 100 billion euros was in prospect.

Equity is important in the current crisis because the distressed loans vastly outweigh the assets that the banks own themselves.

The timetable requires the two parliamentary caucuses in Merkel’s coalition to meet Tuesday to approve the legislation.

Merkel’s party’s commitment to private enterprise means the Christian Democratic Union (CDU) will be hostile to any government interference in the rescued banks’ day to day affairs, so the legislation may have to forbid state influence.

Handelsblatt said the Bundestag budget committee would hold hearings on the legislation Wednesday, with pressure for a first reading of the legislation in parliament before the week was out.

Der Spiegel suggested an even faster passage was planned, with both chambers of parliament and Germany’s mainly ceremonial president, Horst Koehler, approving the package by week’s end.

Foreign Minister Frank-Walter Steinmeier, the ranking Social Democrat in the Merkel coalition, told DPA, “We’ve never needed such sustained crisis management skills as at the moment.”

“We need a world financial group, an enhanced G8, to discuss a new order of global financial relations,” he said.

“In addition to the G8 states, the emerging economic powers like Brazil, India and China should belong to it with equal rights and obligations and perhaps this or that country from the Arab world.”

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