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Germany FinMin: To Include Bad Banks In Public Debt Forecasts

Published Friday, 13th August 2010 12:04 am - © 2010 MNI News

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FRANKFURT (MNI) - The German government will adopt a Eurostat recommendation requiring Germany to include the balance sheets of publicly owned bad banks and has not made any provisions for a potential rescue bank for Hypo Real Estate, the German Finance Ministry told Market News International on Thursday.

The ministry said that all debt related to toxic assets that WestLB has transferred to a bad bank has already been included in the latest debt forecasts. However, no provisions have been made yet for nationalized Hypo Real Estate, the other German institute that plans to shift toxic assets to a bad bank, sources at the ministry said.

A transfer of toxic assets held by Hypo Real Estate to a bad bank might thus indeed spark an upward revision of debt level forecasts.

On July 19, Eurostat had sent a letter to Ministry of Finance State Secretary Bernhard Beus saying that debts held by the publicly owned bad bank that holds WestLB's toxic assets, officially known as Erste Abwicklungsanstalt or First Liquidation Agency, "should be classified as belonging to the general government sector.""Germany will adopt Eurostat's recommendations," the ministry confirmed.

"We have had indications of Eurostat's decision ahead of time and have included all necessary provisions for Erste Abwicklungsanstalt in the latest forecasts," the ministry said.

Last month, the ministry forecast Germany's debt level to reach 78% of GDP in 2010, 80% in 2011 and 80.5% in both 2012 and 2013 before easing to 80% in 2014.

The second German bad bank, founded only last month, has not been considered in these forecasts, the ministry said, noting uncertainty surrounding the size of potential provisions.

Hypo Real Estate -- the only German bank to fail the recent bank stress tests -- said it wants to shift assets worth up to E210 billion to a specially created clearing institute (FMS Wertmanagement) in the second half of 2010.

On Friday, German daily Die Zeit had reported that including Hypo Real Estate's bad bank into public debt calculations would increase the debt-to-GDP ratio to 90%.

The full letter of Eurostat is available online ( statistics/documents/471529_let%20WR-BMF_EAA.pdf).

--Frankfurt newsroom +49 69 72 01 42; Email:

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