All over Europe, stock markets pulled back from the abyss after European Union governments met the global financial crisis with coordinated aid packages.
Germany‘s Dax on Monday and Tuesday posted double-digit gains after the German government agreed on a $680 billion aid package to keep Germany’s financial sector alive. German Chancellor Angela Merkel said the biggest rescue package since World War II “is aimed at protecting our citizens, and not the interests of banks.”
France on Monday announced similar aid measures for its finance system.
Mrs. Merkel announced the German bailout only a day after she and 14 other leaders from the eurozone met Sunday in Paris, where they gave a blocwide promise to shore up the banking system and guarantee interbank lending. The move, together with the bailout program in the U.S., has to injected new life and confidence into Europe’s stock markets.
Observers, however, warn that the crisis isn’t over and that they expect more volatility in the markets during coming days.
The agreement is inspired by Britain’s strategy to bail out all of its major banks in crisis. Germany originally rejected the idea but eventually agreed to back it after the crisis continued to spread.
Britain on Monday bailed out three more banks with an aid package worth $64 billion; British banks are able to use the money on the condition they keep lending to small- and medium-sized enterprises and individuals and that they hand over influence to London on new board appointments.
This seems to be the strategy of governments across Europe: The likes of London and Berlin want to gain more power over the financial sector. In Mrs. Merkel’s words: “We are taking rigorous action to ensure that what we have experienced doesn’t get repeated.”
Mrs. Merkel has long argued for strengthening the International Monetary Fund, and in several TV interviews Monday and Tuesday, she said the global financial sector needed tighter regulation.
The recent crisis shows “that a market economy needs a framework of rules and that was always rejected in the past,” Mrs. Merkel told ZDF television. “That made it difficult because we couldn’t make laws in Germany because of the international nature of the financial markets … so we need many countries pushing for it.”
Germany’s government will take stakes in its banks and aims to influence future decision making. The rescue plan would increase the Finance Ministry’s say over a bank’s equity capital and dividend strategy. It also would severely limit payments to managers at banks that fall back on the fund.
Because Berlin vowed not to take back tax relief measures and social aid packages, the German state budget will likely take a beating over the coming years.
Finance experts nevertheless hailed the package as having a soothing influence on the German financial sector.
“The banks can now lend each other money again with greater confidence, because the state is securing the institutes and their business via capital measures and guarantees,” said Axel Weber, head of the German central bank.
The German aid package needs to be signed by the country’s 16 state premiers, who are expected to give the green light. Mrs. Merkel said the measures could take effect as early as Friday.
Despite the rescue package, Germany’s economy is expected to slow significantly because of the financial crisis.
Germany’s leading economic institutes on Tuesday lowered their growth forecast for 2009 from 1.4 percent to 0.2 percent.
Germany under the most pessimistic scenario may even plunge into recession, the experts said. The current job boom will come to an end, they reported, with unemployment likely stagnating or slightly rising. The governmental aid package will somewhat absorb the shock of the crisis, the experts added.
• Stefan Nicola is UPI’s Germany correspondent.