Hypo Real Estate, Fortis, Bradford & Bingley. Three European banks nearly collapsed in the course of just two days on Sunday and Monday, showing that the Wall Street financial crisis is pulling European companies into its pincers at an ever-faster clip. With trust between banks waning, analysts believe Europe is threatened with a serious credit crunch.
The latest wave of bad news indicates the crisis could hit Germany and Europe harder than politicians previously believed. "The effects of the financial crisis in Germany will be greater than initially expected," Dagmar Wöhrl, a senior official in the German Finance Ministry told SPIEGEL ONLINE.
The budget committee of Germany's federal parliament, the Bundestag, is expected to address the financial market crisis in a special meeting on Tuesday afternoon. SPIEGEL ONLINE has learned from sources close to the committee that Finance Minister Peer Steinbrück, as well as Axel Weber, president of Germany's central bank, the Bundesbank, and Jochen Sanio, president of German financial services regulator BaFin, have been asked to attend.
The most important item on the agenda at what is expected to be a closed-door meeting is state guarantees being used to bailout Hypo Real Estate. Inside sources say up to 35 billion is needed for the rescue operation. The Finance Ministry says the state guarantees will be comprised of two parts. A consortium of banks will assume responsibility for 60 percent of the first part of the bailout, which will total 14 billion, and the state will provide 40 percent. The second part of the bailout will be comprised of a 21 billion guarantee provided solely by the government.
Without the government guarantee, Hypo Real Estate would be unable to pull together the money it needs to recapitalize itself. But if it is unable to pay back the loans, taxpayers will be stuck with the costs.
Further German Banks Threatened
It's also possible that Hypo Real Estate's near bankruptcy will not remain an isolated case for long. Hans-Peter Burghof, a banking professor at Germany's University of Hohenheim, warned that the crisis could quickly spread to other banks. "If you look at the current mechanisms, the crisis is still accelerating and its effects are increasingly being felt in Europe and Germany," he said. His colleague Thomas Hartmann-Wendels, a banking expert at the University of Cologne, also spoke of "numerous factors" that are spurring the crisis in Europe.
Burghof and Hartmann-Wendels believe these factors pose a serious risk for Europe.
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