In a keenly awaited speech to parliament, Merkel also singled out the United States for blame in the crisis and criticized European Union partner Ireland for its “unacceptable” unilateral move to protect Irish banks.
“The long-term consequences of the financial crisis are today impossible to foresee, as are the effects on our growth and our country,” Merkel said. “But I say too, also in this difficult hour, that Germany is strong … and I am firmly convinced that this will help us to cope with the consequences of the financial crisis, even if it will not be easy,” she told lawmakers.
She said that her government – an uneasy coalition of her conservative Christian Democrats with the centre-left Social Democrats – would stick to its reform policies despite the crisis, including its aim to balance the federal budget by 2011.
The speech came two days after Merkel said that all savings and current accounts in German banks would be guaranteed as the government cobbled together a €50-billion ($68-billion) rescue of the country’s fourth biggest bank, Hypo Real Estate (HRE).
HRE was the latest financial group to be rescued in Europe since the year-old credit crunch became a full-blown global crisis last month with the collapse of Wall Street titan Lehman Brothers. But Merkel hit out at a similar guarantee issued last week by the Irish government that would cover all on personal and corporate bank deposits at its six major banks.
“The Irish way is not the right way,” Merkel said. “Protecting without coordination one’s own banks, without including other international institutions that paid taxes in Ireland for years, and thereby of course hurting competition, is in my opinion unacceptable.”
The comments came as European finance ministers agreed in Luxembourg on Tuesday to increase such minimum bank deposit guarantees in Europe to €50,000 ($67,500) from €20,000 currently.
Merkel, in power since 2005, also hit out at what she called the “irresponsible” granting of mortgages to people in the United States with shaky credit histories. “The risks from these loans were sold on, newly packaged, strewn around worldwide and so became the seed of the worldwide financial crisis,” she said.
Merkel also reiterated her opposition to a US-style bailout fund contributed to by all 27 European Union states, as discussed at a meeting with the leaders of France, Italy and Britain at a summit in Paris at the weekend.
“In Germany’s point of view what is not … acceptable is that all 27 member states create a shield and all pay into a fund and then with 27 states to perform the necessary crisis management in member states,” Merkel said. “I do not believe that this is compatible with fast decision-making and therefore we reject this.”
She said that each country should foot the cost of bailouts of its banks but that there should be coordination between EU countries on the financial crisis.
HRE said on Tuesday that its chief executive Georg Funke has resigned. The bank’s management had come under fierce attack from top officials for initially not giving an accurate picture of its finances. Funke is being replaced by Axel Wieandt, who is joining from Deutsche Bank.
Merkel called on firms to punish similar management slip-ups more harshly, saying that mechanisms already existed for doing so but they were not applied enough, “in order to make managers live up to their responsibilities.”