Image: Merkel
Rainer Jensen  /  AP
Chancellor Angela Merkel vowed that she would not let the failure of any company disrupt the German economy: “We will not allow the distress of one financial institution to distress the entire system."
updated 10/5/2008 7:24:08 PM ET 2008-10-05T23:24:08

Germany on Sunday guaranteed all private bank accounts and negotiated a 50 billion euro ($69 billion) bailout deal for Hypo Real Estate AG as Europe’s second largest economy sought to ward off financial crisis.

The Finance Ministry and private banks reached a deal late Sunday to infuse an additional line of credit worth up to 15 billion euros ($21 billion) into the embattled real estate giant, expanding on an earlier 35 billion euro ($48 billion) bailout plan that would have found the government and private banks splitting the bill.

The earlier deal fell apart Saturday when Hypo announced that a consortium of unnamed financial institutions had backed out. That prompted banking executives and lawmakers to convene in the capital for feverish talks toward the new deal they unveiled late Sunday.

The new package includes the original 35 billion euro (48.4 billion) plan with the government paying up to 27 billion euros ($37 billion) of that sum and banks funding the remainder as a line of credit.

New is an additional 15 billion euro ($21 billion) line of insured credit from the banks.

The ministry said in a statement that the new deal would “strengthen the financial community of Germany in difficult times.”

Earlier Sunday, Germany joined Ireland and Greece in taking drastic independent measures to protect its private citizens by guaranteeing all private bank and savings accounts as well as time deposits, or CDs.

Finance Ministry spokesman Torsten Albig said the unlimited guarantee covered some 568 billion euros ($785 billion) in investments.

Chancellor Angela Merkel vowed that she would not let the failure of any company disrupt the German economy.

“We will not allow the distress of one financial institution to distress the entire system,” she told reporters.

Merkel said the plan would ensure that anyone who made reckless market decisions would be made to answer for their actions.

Hypo was the first German blue chip to seek a government rescue. It rant into trouble in mid-September as credit froze on international markets after its Dublin-based unit, Depfa Bank PLC, failed to attract needed short-term funding amid the widening credit crunch.

A spokesman for Ireland’s department of finance said the government would not help Germany bail out Hypo or its subsidiary.

Sunday’s emergency meeting came a day after Europe’s four major economic powers called for tighter regulation in a bid to stop the fiscal bleeding wrought by turmoil on Wall Street — though Germany, France, Britain and Italy shied away from advocating a massive bailout akin to that in the United States, where Congress approved a $700 billion plan last week.

European governments have pumped billions of euros into banks to keep them afloat over the last week, trying to assure savers their money was safe and avert a panic that has frozen lending across the world.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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