German Bank to Collapse, Merkel Guarantees Savings
Germany’s second largest property lender, Hypo Real Estate, said it was on the brink of collapse on Sunday after a 35bn euro ($48bn; £27.2bn) rescue plan collapsed. Hypo said the consortium that appeared willing to save it withdrew their support this weekend.
Interestingly enough, the news of Hypo’s likely collapse came after European leaders said they would not adopt a bailout plan similar to that of the United States.
Experts believe that Hypo, a very big player in the German and thus European financial markets, will not be able to survive for more than a couple of days if the government does not bail it out. If this would happen, and it is increasingly like it will, German and European markets will fall to even lower levels than they did last week.
Although unwilling to commit to any grand bailout plan, or to a plan to rescue Hypo Real Estate, German Chancellor Angela Merkel said that Germany will guarantee all private savings accounts. The announcement will make many Germans feel better and it will certainly help a bit, but it will do little to prevent stock markets in general from falling dramatically this week if Hypo collapses.
One also has to wonder whether guaranteeing private saving accounts is the best course for European governments to follow. Wouldn’t it be less costly and especially more effective to adopt a general bailout plan, that aims to revive the economy as a whole and deal with the credit crisis? As a reader wrote recently, “if any large bank collapsed” guaranteeing private savings “could end up as a complete disaster.”
