By Gernot Heller
BERLIN (Reuters) - Germany acted to stem turmoil in its financial sector Sunday, thrashing out a new rescue for imperiled lender Hypo Real Estate and, in a surprise move, pledging to guarantee private savings accounts.
After German banks and insurers shocked the government on Saturday by withdrawing support for a government-led 35 billion euro ($48.50 billion) rescue for HRE, Berlin scrambled to hammer out a new deal before markets opened Monday.
Under an accord, struck just after 11 p.m. (5 p.m. EDT), the financial sector agreed to provide an extra 15 billion euros ($20.8 billion) in liquidity for HRE on top of the 35 billion they had already committed together with the Bundesbank, the Finance Ministry said.
"With this commonly forged solution, (Hypo Real Estate) will be stabilized and thereby the German financial marketplace strengthened in difficult times," the ministry said.
Earlier, the government said it had agreed to guarantee private deposits to help restore confidence amid the worst financial crisis since the 1930s.
"We say to savers that their deposits are safe," Chancellor Angela Merkel told a news conference in Berlin.
The move was a surprise because, behind the scenes, German officials had been highly critical of Ireland when it announced a similar move last week.
The change in approach reflected the fast-moving nature of the crisis, which spread across the Atlantic much quicker than many leaders in Europe had anticipated.
The Finance Ministry said the guarantee would cover more than 500 billion euros in deposits.
"This is an important signal so that things calm down and excessive reactions are avoided that would make the current crisis tackling and prevention effort even harder," Finance Minister Peer Steinbrueck said.
KEY FINANCIAL PLAYER
Earlier, Steinbrueck expressed exasperation at the management of HRE, which discovered new refinancing problems that made the 35 billion euro rescue agreed last week insufficient.
Banks that had agreed to shoulder 8.5 billion of that total balked when the new problems came to light, throwing the case back in the government's lap.
"The federal government refuses to be forced into some sort of shared responsibility by (HRE) or to put the entire burden of the risks on taxpayers," Steinbrueck said as talks between his ministry, the Bundesbank, financial regulator Bafin and financial institutions began.
With a market capitalization of about 1.5 billion euros, HRE is relatively small compared with other firms in Frankfurt's blue-chip DAX index of leading companies.
But its role as a lender for commercial property, infrastructure and government financing makes it a major financial player.
It accounts for about a fifth of Germany's 900 billion euro Pfandbrief -- or covered bond -- market, which is a crucial source of refinancing for the financial sector.
Banks in Germany and elsewhere in Europe have been keen for governments to agree a general package for the sector along the lines of the $700 billion bailout agreed in the United States.
But Berlin has resisted pressure from other European partners for a European-wide rescue package, saying problems should be handled on a case-by-case basis.
German and French officials denied Sunday that they were set to endorse a common fund to bail out European banks in talks Monday and Tuesday after Italian Prime Minister Silvio Berlusconi was quoted as saying all three nations would back it.
The leaders of France, Germany, Italy and Britain met in Paris Saturday and issued a statement that made no mention of such a fund.
"This was an issue in Paris and there is no need to go over it again," Finance Ministry spokesman Torsten Albig said on Sunday. Asked whether Germany supported the latest Italian proposal, Albig said: "No. Nothing has changed."
HRE is the fifth German bank to have been bailed out in the wake of the credit market turmoil.
(Reporting by Iain Rogers in Berlin, Philipp Halstrick, Patricia Uhlig, Jonathan Gould and Michael Shields in Frankfurt and Christian Kraemer in Munich; Writing by Noah Barkin; Editing by Kevin Liffey)
