The German cabinet approved a law today 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.
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.
US president Barack Obama last night signed into law a $787 billion package of spending and tax cuts, the biggest initiative of its kind in US 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.
In Germany, the new law was presented as last resort to stabilise Hypo Real Estate, which has received €102 billion ($129 billion) in state guarantees.
The law leaves open the possibility of an expropriation of Hypo's shareholders, which includes US 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 ($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 US 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 US government was unable to repair the financial system "the positive impact of a fiscal stimulus will peter out".
Reuters