Germany stepped up efforts to stabilise its banking sector on Wednesday, approving a draft law allowing forced nationalisations and saying it would use its new powers to take control of lender Hypo Real Estate. The German step is the latest example of state intervention in the banking sector as countries across the globe abandon free-market principles and move to shore up institutions seen as crucial to the functioning of their broader economies.
The new German legislation, which was backed by Chancellor Angela Merkel's cabinet on Wednesday but must still be approved by parliament, breaks a post-war taboo in giving Berlin the right to expropriate, or dispossess, shareholders in domestic banks. Merkel's "grand coalition" agonised for weeks before choosing this path, aware that it is linked in the minds of many Germans to Nazi seizures of Jewish property in the 1930s and East Germany's assault on private business after World War Two.
In the end it decided it needed the "Enteignung" option to ensure it could take control of Munich-based Hypo, but imposed strict time limits on any expropriation to make clear it was not mulling similar moves with other banks. "We examined this very carefully and I don't believe we have any alternative," Merkel told reporters. Hypo has received 102 billion euros ($128.4 billion) in guarantees from the state and fellow banks over the past year but remains in dire financial straits.
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