New rescue plan for shaky German bank

Germany's second biggest mortgage bank, Hypo Real Estate (HRE), is on the verge of collapse, although the government there and banks have agreed a new 50 billion euro rescue plan late on Sunday German time. (Updated for new rescue plan and Government guarantee) An earlier rescue deal last brokered by the German government to pump 35 billion euros of government and and private cash into the bank imploded on the weekend after it became clear it needed 100 billion euros by the end of the year to survive. This happened after its Irish unit Depfa collapsed when it couldn't get wholesale funding. Here's what the Financial Times says it means for Europe's financial system.

A failure of HRE, with its 400 billion euros balance sheet, would be the biggest threat to the German financial system of the current crisis. Peer Steinbruck, finance minister, justified the government's intervention to support HRE by warning that its collapse could badly affect the real economy. Since HRE's original rescue plan was agreed a week ago some European governments have become increasingly interventionist in trying to overcome the financial crisis, nationalising a string of banks. But Berlin has appeared less keen on wholesale government intervention and made sure other German banks supported the HRE rescue attempt.

Meanwhile the leaders of Germany, Britain, France and Italy met over the weekend to discuss the credit crisis paralysing financial markets in Europe. They agreed to create a 12 billion euro fund to help small business, but cancelled any attempts to build a US-style European bailout fund. There was also growing concern about Ireland and Greece's decisions to guarantee bank deposits in their countries, destabilising the European banking system. There are widespread reports of depositors moving money to Ireland to be sure of a government guarantee. Meanwhile, Germany announced a government guarantee on all personal bank accounts on Sunday.