German 'bad bank' plan an election headache for Merkel

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BERLIN, April 19 (AFP): German Chancellor Angela Merkel will hold a crunch meeting Tuesday to thrash out a plan to remove "toxic" assets from banks-an issue that has become a political hot potato with an election looming.
Politicians are torn between the urgent need to prop up Germany's beleaguered banking sector and the desire not to anger voters with a bank bailout only five months before a general election in Europe's biggest economy.
According to some estimates, German banks are stuck with around 300 billion euros (392 billion dollars) of "toxic" assets on their books-assets that are either worthless or cannot be sold easily in the current market climate.
Weighed down by these bad holdings, banks have become reluctant to lend money to consumers and businesses, depressing the German economy, which is facing its worst recession in six decades.
The solution proposed by Finance Minister Peer Steinbrueck is to allow banks to create their own individual "bad banks" to park these assets.
Steinbrueck's plan distinguishes between toxic or worthless assets and "illiquid" assets, which banks are finding difficult to sell in today's clogged-up markets but which could eventually rise again in value.