Merkel will push German banks to avoid credit crunch

Berlin : German Chancellor Angela Merkel yesterday said she would speak with bank chiefs this week to see what could be done to prevent a credit crunch that could harm economic recovery.

"We're in a critical situation," Merkel said in her weekly video podcast. "We're going to speak with banking leaders to see what we can do to prevent a credit crunch that could slow the recovery."

Merkel will meet with industry, union and science leaders at the chancellery on Wednesday to discuss economic issues.

"Obviously, on the one side the banks have to act responsibly — that's the key lesson learned from the crisis," she said. "But on the other side, the banks have a shared social obligation: they are service-providers for the economy.

Obligation

"And that's why we say quite clearly that we will insist the banks live up to this obligation," Merkel said.

Merkel said the government would establish a new credit mediator that would help companies having trouble getting access to financing. "But that cannot be a substitute for the banks' responsibilities," she said.

The German economy has battled back from its worst post-war recession but policymakers are fretting about a potential credit crunch starving industry of funds to meet growing foreign demand for the capital goods.

Dieter Hundt, president of the German employers association, said last week he saw the danger of a widespread credit crunch.

Banks have been reluctant to tap government aid for fear of being stigmatised.