BERLIN (AFP) — Germany weighed the fallout Sunday from the failure of the country's biggest financial rescue in history, after Europe's top four economic powers pledged a coordinated approach to the credit crunch.
German bank Hypo Real Estate (HRE) dropped the bombshell late Saturday that a planned 35-billion-euro (48-billion-dollar) rescue fell through after the banking consortium involved pulled out of the deal.
The news came as the leaders of France, Germany, Britain and Italy huddled in Paris to pledge a more coordinated approach to prevent the meltdown in US financial markets from engulfing their economies as well.
President Nicolas Sarkozy, who hosted German Chancellor Angela Merkel and prime ministers Gordon Brown of Britain and Silvio Berlusconi of Italy, vowed governments would help European banks and financial institutions in trouble.
But the leaders also called for punishing failing bank executives and urged a rapid meeting of the Group of Eight world industrialised powers to marshall a global response to the financial crisis.
While the four powers put on a united front Saturday, there was no talk of a joint bail-out fund for European banks, on the model of the 700 billion dollar US package approved Friday, after the idea was shot down by London and Berlin.
Merkel told reporters that "each country must take its responsibilities at a national level," and added: "It is important to act in a balanced way, and for countries not to cause harm to each other."
That comment appeared to be aimed at Ireland, which has issued a blanket guarantee to bank depositors without consulting its neighbours.
European Commission head Jose Manuel Barroso expressed relief after the Paris meeting, welcoming the pledge by Europe's main economies to work together as a "concrete step in the right direction," in remarks published Sunday.
"I think we did our maximum in the face of a very grave and serious situation that Europe did not create but of which it is suffering the effects," Barroso told French newspaper Le Parisien.
But Spanish commentators, many stung that their leaders were excluded from the big-four meeting, had a darker take on the meeting.
"Europe gives up on a joint rescue plan against the crisis," wrote the centre-left El Pais, lamenting that the EU "lacks the necessary institutions to respond as the United States has done."
Although the crisis has hit the US harder so far, "in the EU even a minor crisis could be more devastating because of the lack of an institutional framework and political will."
The rescue bid for HRE was the largest in German history and came after the bank was sucked into the global financial turmoil by its inability to refinance debt, one of many high-profile European emergency cases in the past two weeks.
HRE said in a statement that a consortium of German banks taking part in the rescue had "refused to provide liquidity lines."
The property lender said it was in the process of "determining the consequences" of the consortium's withdrawal on various divisions.
Meanwhile private banks and officials from the finance ministry were to gather Sunday for an 11th-hour rescue attempt before markets reopen Monday.
The original plan had comprised an immediate cash injection by private banks and by the European Central Bank, which was to be backed by a 35-million-euro guarantee covered mainly by the German government.
HRE was hobbled by debts incurred by a German-Irish subsidiary, Depfa, which it bought in October 2007, after the international financial crisis emerged with the collapse of the US market for high-risk, or subprime, mortgages.
Depfa specialises in the financing of public works projects.
Despite the assurances from European leaders, one German minister could not resist an alarmist take on the gathering storm.
Interior Minister Wolfgang Schaeuble warned in a magazine interview that the global financial crisis could have political repercussions, noting that Adolf Hitler rose to power following the 1929 Wall Street crash.
"We learned from the worldwide economic crisis of the 1920s (and 1930s) that an economic crisis can result in an incredible threat for all of society," he was quoted as saying in an advance copy of Der Spiegel's Monday edition.
"The consequences of that depression was Adolf Hitler and, indirectly, World War II and Auschwitz."
The current turmoil is a "historic break that will be recounted later in history books. This was also the case on September 11, 2001," he said, referring to the terrorist attacks on the United States.
"We thought we were not as stupid as speculators in the 17th century who traded in Dutch tulip bulbs and annihilated everything," he said. But, he added, "we have been just as stupid."
Copyright © 2009 AFP. All rights reserved. More »
