German Minister Says Subprime Effects Could Extend Into 2009 | Business| Economy and finance news from a German perspective | DW | 03.04.2008
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German Minister Says Subprime Effects Could Extend Into 2009

Finance Minister Peer Steinbrueck believes the impact of the global financial crisis could be felt well into next year. Meanwhile, Germany's second biggest state-owned bank has announced billions of euros in write-downs.

EU flas and many one euro coins

Financial turmoil has torn holes in the books of Germany's regional banks

The credit market squeeze and volatile market activity after the collapse of the subprime mortgage market in the United States "are going to have repercussions all year and well into 2009," Steinbrueck said in the Thursday, April 3, edition of the daily Bild tabloid.

Steinbrueck said banks should be more aware of risks and exercise prudence as a result of the crisis, rather than focus on returns. He also said he approved of fusions among the regional banks.

"We have too many state banks that are too small," he told the paper.

Several German banks have admitted to being hit by the subprime crisis, with mid-sized business lender IKB, for instance, receiving billions in help from state and public savings banks. Steinbrueck defended the use of domestic budget funds to help bail out IKB. Some of the banks, including SachsenLB, were bought out and shored up by other regional lending institutions.

Banks with major write-downs

Also on Thursday, Germany's second biggest state-owned bank BayernLB announced write-downs of 4.3 billion euros ($6.7 billion) as a result of the US housing market crisis.

The Bavaria-based bank was the third German financial institution this week to own up to losses as a consequence of involvement in the subprime mortgage market. BayernLB reported write-downs of 2.3 billion euros for 2007 and an additional 2 billion euros for the first quarter of 2008.

Finance Minister Steinbrueck

Finance Minister Steinbrueck has warned of aftershocks on different levels

On Wednesday, Germany's biggest state-owned bank, WestLB, revealed a net loss of 1.6 billion euros last year. Deutsche Bank AG, Germany's biggest bank, said earlier this week that it expected write-downs of around 2.5 billion euros in the first quarter of 2008. UBS, Europe's largest bank, projected around 12 billion euros in write-downs following the US housing market crisis.

Not in the black

Despite the shakiness of the global market situation, Steinbrueck said Germany could still proceed with a pension increase planned for July 1.

"This increase is fair and important because it tells pensioners that they have not been left by the wayside," Steinbrueck said.

The minister also told the European Commission in a statement Wednesday that Germany expects to turn in a public deficit equivalent to 0.5 percent of gross domestic product this year.

In 2007, the country was able to announce a slight surplus of 70 million euros.

The German Finance Ministry said the switch back to a deficit was the result of reforms to business taxes and unemployment allocations.

The German public account is composed of the finances of federal, regional and municipal governments as well as the national social security system.

Experts say the federal government's budget remains in the red, and is not expected to be balanced before 2011.

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