Darling under pressure after German savings 100% protected

Published on Sunday 5 October 2008 22:44

ALISTAIR Darling, the Chancellor, was last night under increasing pressure to extend state protection for bank depositors in the UK, after the German government announced it would guarantee all private savings.

In a similar move early this morning, the government of Denmark guaranteed all bank deposits as part of a deal with banks to set up a 35 billion Danish crown (3.6 billion) liquidation fund.

Yesterday, the German finance ministry confirmed a new 50 billion (38.5 billion) deal with private banks to bail out the country's second largest commercial property lender, Hypo Real Estate. A ministry statement said the deal would add up to 12 billion in credit to an earlier plan worth 27 billion.

Previously, German finance ministry spokesman Torsten Albig said the decision to offer the savings guarantee represented a new direction to help stabilise the economy. Angela Merkel, Germany's chancellor, said no citizen should fear for the safety of their savings.

Previous moves by Ireland and Greece to guarantee 100 per cent of savings have been criticised by the UK government, which fears savers will switch funds to banks based abroad to benefit from the enhanced protections.

Now the surprise move by Berlin – a day after an EU summit at which Germany, France, the UK and Italy agreed to co-operate on measures to tackle the financial crisis – heaps extra pressure on Mr Darling to follow suit.

Last night, there was speculation at senior levels in the British business community that the government could be forced into making an announcement for the UK, possibly as early as today.

Yesterday, Mr Darling rejected calls for him to tear up his economic rulebook in order to allow the Bank of England to deliver sharp cuts in interest rates. Nick Clegg, the Liberal Democrat leader, said the German savings guarantee made a common European approach to deposit guarantees "completely unavoidable".

The German initiative comes just days after the Financial Services Authority announced it was extending the cover for savers at banks which fail from 35,000 to 50,000 from next Tuesday, partly in response to a flight of savings to Irish banks.

Ms Merkel vowed she would not let the failure of any company disrupt the country's economy – Europe's biggest.

"We will not allow the distress of one financial institution to distress the entire system," she said. "For that reason, we are working hard to secure Hypo Real Estate."

Chancellor will take action to support banks at risk

ALISTAIR Darling said he was ready to offer further assistance to individual banks that got into difficulties.

The Chancellor said the government was providing generalised support to stabilise the banking sector as a whole, but was also prepared to take action where specific banks were at risk of collapse, as it did with Bradford & Bingley and Northern Rock.

He said the government was ready to take "pretty big steps that we wouldn't take in ordinary times" in order to ensure that Britain gets through the current crisis. But the Chancellor said he would resist pressure to scrap the Bank of England's inflation target to allow for cuts in interest rates, insisting that it was vital to maintain economic discipline even in bad times.

And he indicated that he was ready to let state borrowing rise higher, rather than increase taxes, arguing that now was not the time to take money out of the economy.

Mr Darling said: "It's important to take generalised action as well as being ready to take particular action if you get a particular problem with an individual bank."