Merkel pressures banks to tap rescue packages

Merkel pressures banks to tap rescue packages
Photo: DPA
German Chancellor Angela Merkel criticized banks on Wednesday for being too proud to tap Berlin's €480-billion ($625-billion) rescue package and lend more money to recession-hit firms.

“Confidence between banks is still not at the level that it should be,” Merkel said in a speech to parliament during a debate on the federal budget, saying that banks should not refuse help based on “false prestige.”

“It is the responsibility of financial institutions to give loans to companies that need them,” Merkel said.

Merkel’s rescue package provides up to €80 billion to banks needing fresh capital and allows for up to €400 billion worth of loans to be backed by cast-iron government guarantees to kickstart frozen lending.

But since the measures were rushed through parliament in October few banks have made use of them, particularly in the private sector, fearing that being seen to need help from the government would tarnish their reputations.

They are also wary of strict conditions placed by the government on lenders that make use of the rescue measures that include caps on bankers’ salaries.

In a speech on Tuesday, Merkel likened the banks to “cold blooded creatures in winter … They don’t move. They are alive but they don’t do what you expect.”

Germany entered a recession in third quarter and Finance Minister Peer Steinbrück conceded on Tuesday for the first time that Germany’s GDP could contract by as much as one percent in 2009 – the steepest decline since 1945.