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Merkel guarantees German savings Germany acts to guarantee savings
(30 minutes later)
Germany will guarantee all private savings accounts, says Chancellor Angela Merkel, as a major bank struggles to stay in business. Chancellor Angela Merkel has announced that Germany will guarantee all private savings accounts, as a major bank struggles to stay in business.
Ms Merkel was speaking after an emergency meeting with the central bank and financial regulator.Ms Merkel was speaking after an emergency meeting with the central bank and financial regulator.
Hypo Real Estate, Germany's second biggest commercial property lender, is in trouble after a 35bn euro ($48bn; £27.2bn) rescue plan collapsed. Hypo Real Estate, Germany's second biggest commercial property lender, is in trouble after a 35bn euros ($48bn; £27.2bn) rescue plan collapsed.
Hypo has said it will study alternative measures to fund its business.Hypo has said it will study alternative measures to fund its business.
Ms Merkel has been strongly critical of the Irish decision to take independent action to protect all savings deposits. Ms Merkel had previously been strongly critical of the Irish and Greek governments' decisions to take independent action to protect all savings deposits.
"We will not allow the distress of one financial institute to distress the entire system. For that reason, we are working hard to secure Hypo Real Estate," she said on Sunday. That Germany is the first of the major European economies to provide 100% insurance to private savers shows just how fragile its banks have become Robert PestonBBC business editor class="" href="http://www.bbc.co.uk/blogs/thereporters/robertpeston/2008/10/full_deposit_protection_is_nig.html">Peston's view: Full protection nigh class="" href="http://newsforums.bbc.co.uk/nol/thread.jspa?forumID=5449&edition=1">Send us your comments class="" href="/1/hi/business/7652739.stm">No business rush to Irish banks BBC business editor Robert Peston says the German decision is momentous, and that all other EU countries - including the UK - will almost certainly follow suit.
"We will not allow the distress of one financial institution to distress the entire system. For that reason, we are working hard to secure Hypo Real Estate," Ms Merkel said.
The BBC's Tristana Moore in Germany says the government is under intense pressure to save the bank before markets reopen on Monday.The BBC's Tristana Moore in Germany says the government is under intense pressure to save the bank before markets reopen on Monday.
But our correspondent says tax-payers must also be convinced that a bail-out would be justified. 'Irresponsible'
On Saturday, European leaders at a Paris summit stopped short of offering a US-style bank bail-out plan.
The collapse of Hypo Real Estate will put further strain on other financial institutions in other countries, struggling against a crisis of confidence in the global financial system.The collapse of Hypo Real Estate will put further strain on other financial institutions in other countries, struggling against a crisis of confidence in the global financial system.
'Responsibility' Ms Merkel also said that managers at financial institutions should be held accountable for "irresponsible behaviour".
Ms Merkel also said that managers at financial institutions should be held accountable for what "irresponsible behaviour". Hypo's problems should have been revealed earlier, a minister says Finance Minister Peer Steinbrueck said he was "appalled" that the problems had not been revealed earlier.
Finance Minister Peer Steinbrueck said he was "appalled" that the problems had not been revealed earlier. Hypo Real Estate relies heavily on borrowing from other banks to fund its business and has suffered badly as banks have become increasingly cautious about lending to each other.
It has to be indicated to the markets... that European countries will not react as every man for himself Dominique Strauss-Kahn, IMF head Peston: How to solve crisisSend us your commentsNo business rush to Irish banks Hypo Real Estate relies heavily on borrowing from other banks to fund its business and has suffered badly as banks have become increasingly cautious about lending to each other.
Just last week, the firm announced that it had succeeded in securing a credit facility worth 35bn euros stitched together by the government.Just last week, the firm announced that it had succeeded in securing a credit facility worth 35bn euros stitched together by the government.
Under the deal, the government was going to provide the lion's share of the loan, with a consortium of banks providing 8.5bn euros.Under the deal, the government was going to provide the lion's share of the loan, with a consortium of banks providing 8.5bn euros.
It was designed to make sure that Hypo Real Estate had sufficient short and medium-term funding to make sure it could function while the international money markets remained in a deep freeze.It was designed to make sure that Hypo Real Estate had sufficient short and medium-term funding to make sure it could function while the international money markets remained in a deep freeze.
But Hypo Real Estate said the banks had withdrawn support for the loan, putting the whole rescue package at risk.But Hypo Real Estate said the banks had withdrawn support for the loan, putting the whole rescue package at risk.
Executive 'sanctions' On Saturday, leaders of the major European economies met in Paris for talks hosted by French President Nicolas Sarkozy.
News of the failed plan came after leaders of the major European economies met in the French capital for talks hosted by President Nicolas Sarkozy. Britain, Germany, Italy and France all agreed to work together to support financial institutions - but stopped short of agreeing US-style bank bail-out plan.
Britain, Germany, Italy and France all agreed to work together to support financial institutions but did not agree to set up a big rescue fund similar to that of the US.
Hypo's problems should have been revealed earlier
They decided instead to seek a relaxation of the EU rules governing the amount of money individual states can borrow.They decided instead to seek a relaxation of the EU rules governing the amount of money individual states can borrow.
The leaders also issued a joint call for a G8 summit "as soon as possible" to review the rules governing financial markets.The leaders also issued a joint call for a G8 summit "as soon as possible" to review the rules governing financial markets.
Speaking after the meeting at a joint news conference, Mr Sarkozy said the four had agreed that the heads of a financial institution that had to be rescued should be "sanctioned".
Chancellor Merkel called on EU countries not to take steps at home that could cause problems for other member states.
UK Prime Minister Gordon Brown, meanwhile, called on European leaders to send the message that "no sound, solvent bank should be allowed to fail through lack of liquidity".
He also said the meeting had agreed to ask the European Investment Fund to release 15bn euros ($21bn; £12bn) in loans to help small businesses operate.
The head of the International Monetary Fund (IMF), Dominique Strauss-Kahn, had earlier urged EU action, saying the financial crisis was presenting Europe with a "trial by fire".
Calls for European action followed the bail-out of both Bradford and Bingley in the UK and Fortis Bank by the governments of Belgium, Luxembourg and the Netherlands.