German Finance Minister Peer Steinbrueck said the turmoil in financial markets is casting a shadow on the economic outlook for the countries using the euro.
``We're having to deal with a very serious financial market crisis,'' Steinbrueck told lawmakers in the lower house of parliament, the Bundestag. ``It is to be expected that economic developments will cloud over in Germany and the European economies.''
The crisis, which pushed some banks to the verge of a collapse and the U.S. into recession, will continue throughout 2008, Steinbrueck said.
Financial-market turmoil may damp Germany's economic expansion and make it more difficult to reach the goal of balancing the federal budget by 2011. German growth will slow to 1.2 percent next year from 1.7 percent in 2008, the government predicted yesterday.
Still, Steinbrueck said writedowns at banks mustn't be confused with actual losses. Provisions in Germany amount to as much as 45 billion euros ($70.1 billion), around a tenth of total value adjustments estimated by the Organization for Economic Cooperation and Development. Actual losses so far total less than 5 percent of that amount he said.
Bundesbank President Axel Weber today said confidence in financial markets ``remains considerably distorted.'' To re- establish ``a minimum of trust, more transparency on still- existing risks and possible value adjustments is needed,'' Weber, who helps supervise German banks, said at a conference in Eltville, Germany today.
Push for Transparency
Steinbrueck said the U.S. and the U.K. have become more willing to join Germany's push for greater market transparency and stricter supervision after Northern Rock Plc became the first British bank to suffer a run on its deposits in 140 years and the U.S. Federal Reserve was forced to provide emergency funding to New York-based Bear Stearns after a run on the company put it on the verge of bankruptcy.
The Financial Services Authority in London will ``increase our supervisory challenge with management'' and is ``willing to be more directive when warranted,'' FSA Chief Executive Officer Hector Santssaid at the agency's Insurance Sector Conference in London on April 8.
In the U.S., the President's Working Group on Financial Markets proposed to strengthen supervision of banks' capital, amid concern they failed to protect against the risks they took investing in subprime assets. Treasury Secretary Henry Paulson, who chairs the group, said on March 13 ``regulation needs to catch up with innovation.''
``The Anglo-Americans are slowly falling in line, under pressure from a learning curve that results from this crisis,'' Steinbrueck said. ``They weren't quite there yet six or seven months ago.''
At a meeting with banking chiefs on the occasion of the Spring Meeting of the International Monetary Fund in Washington this month, chief executive officers from the world's biggest banks asked for more government regulation, Steinbrueck said, adding he hadn't ``dared to dream'' of that half a year ago.
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