German Finance Minister defends Hypo Real Estate rescue

Aug 20, 2009, 12:13 GMT

Berlin - German Finance Minister Peer Steinbrueck defended the government's multi-billion-euro rescue of Hypo Real Estate (HRE) bank on Thursday, during a parliamentary inquiry.

'The crisis management was appropriate and correct,' said Steinbrueck, the last person to testify to the panel investigating whether the HRE bail-out was a good use of taxpayer money.

Now nationalized, HRE has been propped up with financial aid to the tune of 102 billion euros (145 billion dollars), of which 87 billion euros have been supplied by the state.

'We were able to avert far-reaching damage to our country and our citizens,' the finance minister said, adding that state intervention prevented a financial market collapse.

The German government frantically negotiated an initial 35- billion-euro HRE rescue plan, before stock markets opened on September 29, 2008, two weeks after Lehman Brothers of New York filed for bankruptcy.

Since then, Steinbrueck said, lessons had been learnt. The minister demanded new global financial regulations to prevent a repeat of last year's crisis.

It was the collapse of Lehman brothers, Steinbrueck said, that 'abruptly' changed the situation for HRE. The consequences, he said, had been a global conflagration, a loss of trust and the destruction of assets.

It was in these circumstances that the rescue deal was rashly pulled together between banks and the state, which shouldered the majority of the bail-out.

'We had to act in real time under enormous time pressure, with incomplete information,' Steinbrueck said of the flat-out negotiations late September.

The finance minister said it was 'simply absurd' to suggest that the government had been ill-prepared or acted too late.

Steinbrueck said HRE's serious problems only began after the collapse of Lehmann, adding that the bank's business model had been rated as fully functional before September.

'Between September 15 and October 5 the financial world stood just millimetres from the abyss,' Steinbrueck said, adding that he could not understand why the US government had allowed Lehmann to fail.

Since then, the leading G7 industrialized nations have pledged not to allow another key bank to become insolvent. Due to its international networks and 400-billion-euro assets, HRE was considered such a key bank.

Steinbrueck, of the centre-left Social Democrats (SPD) lauded the cooperation with Chancellor Angela Merkel of the Christian Democrats (CDU) during the crisis.

The SPD and CDU are seeking to disband their governing coalition after a general election on September 27.

The inquiry was set up at the behest of opposition Free Democratic (FDP), Green and Left Party members who contend that the state misspent taxpayer money to rescue the ailing mortgage lender.

Since it started in May, the inquiry has questioned top bankers, financial supervisory authorities and government officials. It is expected to present its conclusions in September, days before the general election.