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LONDON-The German cabinet approved a law on Wednesday letting it nationalise banks, setting aside a reluctance to seize private property in the latest government intervention worldwide to tackle the financial crisis. Germany said it was not planning to extend the role of the state through the bill, which it described as a last resort and could lead to the forced nationalisation of struggling German lender Hypo Real Estate (Xetra: 802770 - news)But it nonetheless set aside a postwar commitment to respect private property, becoming the latest government to edge away from free market policies, instead using state support to prop up flagging banks and industries.President Barack Obama on Tuesday signed into law a $787 billion package of spending and tax cuts, the biggest initiative of its kind in U.S. history.He said the stimulus package would 'mark the beginning of the end' of the ills facing the economy.But with new problems emerging all the time from a twin collapse in asset prices and availability of credit, financial markets remained jittery about the outlook.The stimulus package is only one part of a massive rescue operation by the U.S. administration, which still has to shore up its banks and car industry.'Until we have more visibility on the U.S. banks and more positive wording from companies, it's difficult to see markets climbing again,' said Thierry Lacraz, strategist at Pictet in Geneva.General Motors Corp (NYSE: GM - news) and Chrysler LLC have requested nearly $22 billion in additional government loans.The two automakers, which have so far received $17.4 billion in loans, also said on Tuesday they would cut jobs and idle plants in restructuring plans submitted for the bailout.They said they had reached tentative deals with the United Auto Workers union to reduce labour costs.The deepening financial problems for GM and Chrysler present the U.S. administration with a tough call. Pushing the companies into bankruptcy would cost tens of thousands of jobs just as the stimulus package aims to head off a deeper recession.Obama was also expected on Wednesday to unveil a plan to stabilise the housing market, using roughly $50 billion of government subsidies to lenders to prevent foreclosures.GERMANY AGONISES
In Germany, the new law was presented as last resort to stabilise Hypo Real Estate, which has received 102 billion euros ($129 billion) in state guarantees.The law leaves open the possibility of an expropriation of Hypo's shareholders, which includes U.S. private equity investor JC Flowers with nearly a quarter of Hypo's shares.Other countries, including Britain and Ireland, have already seized control of banks, justifying this by pointing to the nature of the crisis and the need to protect taxpayers.But Germany has agonised over 'Enteignung' (expropriation) of shareholders, a loaded term linked in the minds of many to Nazi seizures of Jewish property in the 1930s.In France, President Nicolas Sarkozy was trying to assuage labour unrest over his handling of the economic crisis which included a 26 billion euro ($33 billion) stimulus package that targets investment rather than directly helping consumers.He was due to meet unions later to discuss their demands for measures to protect jobs and wages, though his room for manoeuvre was limited by budgetary constraints.The latest welter of government intervention has done little to reassure financial markets. Global share prices, as measured by MSCI's world equity index, were down on Wednesday reflecting hefty falls in Asia overnight.Former U.S. Federal Reserve Chairman Alan Greenspan said the stock market had been hit by 'a degree of fear not experienced since the early 20th century'. He said if the U.S. government was unable to repair the financial system 'the positive impact of a fiscal stimulus will peter out'.The euro edged up against the dollar after hitting a 2-1/2 month low on Tuesday on concerns about euro zone banks with heavy exposure to weakening economies in Central Europe.The FTSEurofirst 300 index of top European shares was down on worries of new credit losses in Central Europe.'A year ago, CEOs were confessing to skeletons in the cupboard in the shape of CDOs (collateralised debt obligations) in the United States. Now the focus is turning to the east,' one trader said.Overall, investors were still heading into safe assets such as gold as worries spread the recession could drag down economies which had so far resisted the worst of the crisis.
INSTABILITY IN CHINA
In China-which many had hoped might be able to power the global economy out of the worst downturn since the Great Depression-a trade union official warned against 'hostile forces' stirring up trouble among newly unemployed workers.The Communist Party leadership has already expressed concerns about idle rural workers gathered in struggling export hubs. About 20 million jobs have been lost in southern China's manufacturing hub of Guangdong alone.Beijing said it would increasingly use its foreign exchange reserves to support domestic growth and finance Chinese companies overseas. But it denied a magazine report quoting a senior official as saying its slowing economy meant the yuan might weaken to as low as 6.95 to 7 per dollar.The news across Asia has been almost uniformly bad.Japan is reeling from its worst downturn in a generation. In Taiwan, a source close to the government said GDP fell 8.36 percent in the fourth quarter of 2008.The rare exception was in Australia where retail sales data showed a rise of 0.8 percent in the fourth quarter as shoppers took advantage of stimulus measures and falling interest rates.
Editing by Alison Williams
By Myra MacDonald
As in the days of Noah...
