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German rescue valued at 470 billion euros

BERLIN - Germany was to give details on Monday of how it will inject 70 billion euros (95 billion dollars) into the banking system and post a 400-billion-euro guarantee on top of that, Berlin sources said.

Chancellor Angela Merkel was expected to announce Germany's role in the coordinated European rescue at an afternoon news conference, with her finance minister to issue details half an hour later.

A copy of the draft legislation obtained by Deutsche Presse-Agentur dpa indicates Germany will set up a state fund that will inject equity into the banks and accept troubled assets from them as security.

Germany's Finance Ministry would be authorized to borrow 70 billion euros for the fund. That sum is about 50 per cent more than the stabilization fund announced Monday by London for leading British banks.

Setting up the German Financial Market Stabilization Fund will increase Germany's net public borrowing, but the bill states that, initially, none of the money will be budgeted as federal expenditure.

The new fund will offer to take over tainted securities, mainly derivatives, provided they were on the banks' books as of Monday. The time limit prevents the banks from buying junk securities and passing them on to the German government at a higher price.

The fund will have leeway to grow by an additional 10 billion euros if need be.

The banks would be required to show they were pursuing "careful" business plans and the government would have power to set caps on pay for their executives and supervisory boards.

In addition the draft bill authorizes the German state to guarantee interbank trading.

The Finance Mistry would have the power to extend guarantees totalling 400 billion euros up to December 31, 2009.

Banks would have to pay a fee of 2 per cent per annum for such guarantees.

Legislators in Merkel's Christian Democratic group (CDU/CSU) and their coalition partner, the Social Democratic Party (SPD), confirmed 470 billion euros as the sum being talked about.

Sources said Merkel and the two leading Social Democrats in her coalition government, Finance Minister Peer Steinbrueck and Foreign Minister Frank-Walter Steinmeier, agreed in the night on the basics of the plan.

The cabinet was to meet Monday, with the pro-Merkel parties, which have an overwhelming majority in the Bundestag lower chamber, expected to move the legislation Tuesday.

Passage by Saturday is feasible if there is no opposition.

Merkel was expected to speak from the media room at her office at 3 pm Berlin time (1300 GMT) with her remarks to be broadcast live on all-news television. Steinbrueck was to hold a news conference half an hour later.

Signs were emerging Monday of criticism of the terms of the rescue, which follows a 50-million-euro mixed public-private bail-out last week for a German mortgage lender, Hypo Real Estate.

One CDU state premier, Peter Mueller of Saarland state, welcomed the package, but said he favoured a cap on state aid to the banks. "Banks that have misbehaved on the markets should be held responsible for it," he said.

Others criticized finance minister Steinbrueck for apparently abandoning plans to balance the German federal budget by 2011.

Guenther Oettinger, the CDU premier of Baden-Wuerttemberg state, said, "A brake on public debt is just as necessary, even more necessary in the future."

The mass-circulation newspaper Bild had quoted Steinbrueck saying, "We'll keep our target of balancing the budget in mind, but it's going to take longer now."

Opposition parties were expected to demand tougher conditions for the banks to be rescued.

On N-TV television, Greens co-leader Reinhard Buetikofer, said, "The government can't expect to be given a blank cheque."