Germany is preparing a bail-out that permits the recapitalization of banks with billions of euros in cash injections, according to news reports. The IMF warned of the growing possibility of a global finance "meltdown."
The German bail-out could cost between 50 billion euros and 100 billion euros
Germany is expected to guarantee interbank loans for up to several hundred billion euros and bail out banks in exchange for shares in the institution, similar to the partial nationalization plan announced in Britain this week.
"This is about providing the banks with sufficient capital," Merkel told reporters. "I don't rule out that there will be capital injections."
Chancellor Angela Merkel has said on Saturday, Oct. 11, that she will sign off with fellow euro zone leaders Sunday before going into the rescue plan's details. Merkel's Cabinet is set to approve the plan on Monday, the Web site of the German business daily Handelsblatt reported.
The bail-out represents a change our course for Germany, which tried to sit out the crisis before stock markets around the world plunged last week.
"The objective is to pass the necessary laws as soon as possible so the markets calm," an anonymous government official told the paper.
German banks could be getting a shot of money
The extra liquidity would be pumped into German banks and government guarantees would be offered as a backstop, while the sum of 100 billion euros ($134 billion) at the most was tagged as an equity injection, Handelsblatt quoted a German delegation source in Washington saying.
The news magazine Der Spiegel quoted "government experts" saying the plan would likely cost between 50 billion euros and 100 billion euros.
Equity is important in the current crisis because the distressed loans vastly outweigh the assets that the banks own themselves.
Expedited parliamentary passage
The timetable requires the two parliamentary groups in Merkel's coalition to meet by Tuesday to approve the legislation. For her part, Merkel has promised "clarity by Monday."
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.
The credit crunch will likely keep German parliamentarians busy next week
Handelsblatt said the Bundestag budget committee would hold hearings on the legislation on Wednesday, with pressure for a first reading of the legislation in parliament before the week was out.
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, according to Der Spiegel.
Foreign Minister Frank-Walter Steinmeier, the ranking Social Democrat in the Merkel coalition, told the German news agency dpa, "We've never needed such sustained crisis management skills as at the moment."
IMF: Globe at brink of systemic meltdown
Der Spiegel quoted him as also calling for international financial reforms in wake of the on-going credit crunch.
Steinmeier wants the IMF to take on a new oversight role
"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."
He also called for a "completely new financial overseer under the aegis of the International Monetary Fund (IMF)," saying he had already discussed this with IMF managing director Dominique Strauss-Kahn.
Earlier, Strauss-Kahn said the global financial system was at the "brink of systemic meltdown."
"Intensifying solvency concerns about a number of the largest US-based and European financial institutions have pushed the global financial system to the brink of systemic meltdown," Strauss-Kahn said after a meeting of the G7 and the World Bank.
European Central Bank President Jean-Claude Trichet said time was needed to assess a series of steps taken by world central banks in recent days, including pouring billions of dollars into financial markets and lowering interest rates in the broadest coordinated cut on record.