Germany prepares €470bn rescue

The German government was on Monday preparing to endorse a bill to restore liquidity and inject fresh capital in the country’s ailing banking and insurance sector potentially worth up to €470bn – the biggest state intervention in the economy since the end of the War.

News that the bill was on its way to chancellor Angela Merkel’s cabinet sent the Frankfurt stock exchange soaring. The exchange’s blue-chip DAX index was up 6.53 per cent, or 296.53 points by mid-morning.

The move is part of coordinated action by eurozone governments, acting in concert with Britain which earlier on Monday unveiled a plan to inject £37bn into its banks. France, Italy and Spain were also working on dramatic plans to shore up their lenders after eurozone governments on Sunday agreed on a broad plan to offer hundreds of billions of euros in guarantees for new, medium-term bank debt issuance.

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In the US, officials were also working to finalise a plan to recapitalise their banks and other financial institutions, which could be unveiled as early as Monday.

In other moves, Australia and New Zealand announced guarantees for all bank deposits, as did the United Arab Emirates, while Saudi Arabia cut its interest rates.

The Swedish government said on Monday it would unveil steps to safeguard their financial sector in the next few days, but did not plan to inject capital into the Nordic country’s banks. Norway announced at the weekend it would offer its commercial banks up to $55.4bn in government bonds in exchange for mortgage debt and Portugal said it would make as much as €20bn ($27bn) available in guarantees for its banks’ financing.

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