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Germany

Merkel Urges German Banks to Tap Government Rescue Fund

German Chancellor Angela Merkel has urged banks to make use of a government bailout fund worth up to 500 billion euros ($637 billion) that few financial institutions have tapped so far.

German Chancellor Angela Merkel

Critics say Merkel should have made participation in the bailout obligatory for banks

As German banks continue to cast around for capital to help them survive the global financial crisis, German Chancellor Merkel called on them to take advantage of the government's 500-billion-euro rescue package to shore up their finances and speed up interbank lending.

"The government reacted quickly and decisively to the international financial markets crisis with a comprehensive stabilization package," Merkel said in her weekly video podcast. "Now our banks and financial institutions need to utilize this package."

German banks slow to ask for help

The bailout plan approved last month by Merkel's government includes terms on the money including a likely salary cap of 500,000 euros ($637,000) for managers at banks that participate. Some officials have however suggested that those caps might be watered down.

But German banks have been slow to line up for the government bailout amid fears of stigmatization, punishment by the stock markets and stringent conditions imposed by the government.

There have been growing calls in Germany over the past week for the banks to take advantage of the aid being offered. Some have even suggested they should be forced to accept recapitalization.

BdT Rettungspaket für Finanzkonzern Hypo Real Estate

The German government's lifeline for banks has had few takers so far

German news magazine Der Spiegel reported that the government would force banks to tap the rescue package, much like in Britain, if they did not voluntarily apply for help.

A spokesman at the German finance ministry however said there was no reason to do that yet.

Public-sector bank BayernLB was the first to take advantage of the bailout, when officials there said last week it was seeking 5.4 billion euros from the fund.

On Wednesday, commercial property lender Hypo Real Estate AG became the first private institution to participate when it requested a 15 billion euro credit line, meant to guarantee its short-term lending activity until it receives a larger bailout in a few weeks.

The government had previously agreed to prop up Hypo in a separate plan worth up to 50 billion euros.

On Friday, media reports said Commerzbank, Germany's second-largest private bank is interested in a capital injection under the government's emergency bailout scheme. News agency Reuters, quoted unnamed sources saying it could lead to Germany taking a stake in Commerzbank.

Exposure to investments in Iceland as well as to collapsed Wall Street investment bank Lehman Brothers are compounding Commerzbank's difficulties, Reuters said.

New measures to boost economy

Merkel also said in the podcast that her Cabinet would approve a second package of intervention measures next week to bolster the weakening economy.

"We know that the international financial markets crisis will also have an impact on our economy," she said. "However, we want the impact on our economy to be limited."

A Daimler factory near Stuttgart

Germany's car industry has been the first to feel the pain of the financial crisis

Fears of a recession in Germany are mounting after the government in mid-October slashed its growth forecast for next year to 0.2 percent from 1.2 percent previously.

New measures to stimulate the economy include transport infrastructure projects, the extension of a program to restore old buildings and tax incentives to buy environment-friendly new cars.

Peter Struck, the parliamentary leader for the Social Democrats, who share a governing coalition with Merkel’s Christian Democrats, said last week that the new package could be worth 20-25 billion euros over the next two years.

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