German parliament approves 500b euro financial bailout

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(China Daily)
Updated: 2008-10-18 10:26

Germany's Bundestag lower house of parliament approved a 500 billion euro ($673.8 billion) bank rescue package on Friday that Chancellor Angela Merkel hopes will restore confidence in a shaken financial system.

A large majority of 476 out of 576 parliamentarians voted in support of the package, which will come into effect on Monday if it wins approval in the Bundesrat upper house. Ninety-nine lawmakers voted against the plan, and one abstained.

"We hope that the law passed today will hinder the worst from happening to the financial markets," said Peter Struck, parliamentary leader for the Social Democrats, which make up half of Chancellor Angela Merkel's coalition government.

German Foreign Minister Frank-Walter Steinmeier (L) and Chancellor Angela Merkel attend a session of the Bundestag in Berlin October 17, 2008. Germany's Bundestag lower house of parliament approved a 500-billion euro ($673.8 billion) bank rescue package on Friday, leaving only the upper house to back the plan later in the day, with a large majority of 476 out of 576 parliamentarians which voted in support of the package. [Agencies]

The vote in the Bundesrat later on Friday should be a formality after Merkel secured support for the package on Thursday from Germany's powerful states, who are represented in the chamber.

Speaking in the Bundesrat, Finance Minister Peer Steinbrueck said the package aimed to restore liquidity to the banking system that is essential for the proper functioning of the economy and defended his government's handling of the crisis.

Germany had initially pledged help for banks on a case-by-case basis but changed course and decided to adopt a sector-wide plan after the financial crisis hit fever pitch.

"In some judgments we may have been wrong and our timing was perhaps not perfect, but you can only make a judgment based on the information you have at the time," Steinbrueck said. "And I maintain that the scope of this financial market crisis was not clear until deep into August or September."

German Chancellor Angela Merkel (L) holds up her hand as she votes during the second reading of a bill during a session of the Bundestag in Berlin October 17, 2008. Germany's Bundestag lower house of parliament approved a 500-billion euro ($673.8 billion) bank rescue package on Friday. [Agencies]

The German plan, handed to parliament after approval Monday by Merkel's Cabinet, is part of a coordinated European bailout effort in the face of nervous, volatile markets.

Earlier this week, Merkel warned that "the danger for financial market stability has not yet been banished."

"We must, by approving this bill, as quickly as possible create the basis for calming the situation on the markets," she said.

Under a deal struck on Thursday with Germany's 16 states, the federal government would take on 65 percent of the cost of losses arising from the package, and the states 35 percent. The cost to the states would be capped at 7.7 billion euros.

The package comprises up to 400 billion euros in bank guarantees to restore liquidity and as much as 100 billion euros in state funds for recapitalizing struggling financial institutions - sums that together almost equal Germany's annual tax take.

No German bank has signaled publicly yet that it intends to make use of the funds.

Merkel has stressed that there will be "no payment without a trade-off." Banks seeking capital help will have to comply with government-set conditions that could include limits on managers' pay and directions on lending policy.

Agencies