Selling the Bailout

Chancellor Angela Merkel and her conservative Christian Democratic Union were considering reducing interest rates attached to guarantees on interbank loans to make them more appealing to banks in trouble, the Financial Times Deutschland newspaper reported Tuesday, Dec. 2.

The current interest rate on government loan guarantees stands at 2 percent.

The report also stated that Merkel's party was deliberating extending the availability of the guarantees from three years to five.

The German bailout package provides banks with up to 400 billion euros ($505 billion) in loan guarantees and up to 80 billion euros in direct capital investment.

Ministry rejects bailout rethink

But the nation's banks have been cautious in taking the government up on its offer, which they see as having too many conditions attached, including a cap on directors' pay checks.

The German Finance Ministry said Tuesday it was not aware of any plans to amend the country's bailout package, which was approved Oct. 17. German media had previously reported that the ministry was considering changes to the plan that would make it more attractive and convince more banks to make use of it.

But a spokesman for Finance Minister Peer Steinbrueck said all elements of the rescue plan had been approved, "hence, we see no reason to make any changes."

Steinbrueck also criticized the European Commission for being too bureaucratic in assessing the state bailouts on offer across the bloc.

EU bureaucracy hurting economy

The German finance minister and his Swedish counterpart, Anders Borg, said the commission's attempts to rigorously measure the bailouts against EU regulations were counterproductive.

"You shouldn't react to such a financial crisis in such a bureaucratic manner," Steinbrueck said as he arrived for talks with his EU counterparts.

"We need to restore the credit channel. The commission has not been constructive," Borg said. "I do think that we have to pull off these legions of state aid bureaucrats."

Brussels has been chided for requiring too many guarantees that the bailouts would not hinder fair competition.

Germany's bailout of Commerzbank and French plans to help out some of its own troubled banks have come under the commission's microscope.

Commissioner defends safeguards

EU Competition Commissioner Neelie Kroes, who is responsible for reviewing state aid, pledged Tuesday that within the next month the commission would approve new rules governing banks that receive state aid.

Kroes, who is under pressure from some EU governments to quickly approve rescue packages, said the commission expected banks that take up government offers of aid to themselves commit to lending to the real economy.

"It is my goal that the commission will therefore approve before Christmas a series of additional aid possibilities to deal with the transmission of the financial crisis to the real economy," she said after meeting with EU finance ministers.

The commissioner said banks needed strong incentives to repay the state aid as quickly as possible and that safeguards remained necessary to make sure financial institutions did not profit from rescue packages.