EU blamed over German bank woes

Chancellor Angela Merkel has allowed banks to get rid of toxic assets

A German state minister has blamed the European Union (EU) for problems in the state Landesbank banking system.

Dr Werner Marnette, a minister in the government of Schleswig Holstein, said banks changed their operations when the EU told them to be more competitive.

Dr Marnette said he refused to sign bail-out packages for state banks such as HSH, which is part-owned by Schleswig Holstein.

He said HSH Nordbank had made huge losses on complex credit investments.

'Lost contact'

"In former times when these Landesbanks gave credit to a company, the risk was covered by the state," he told the BBC World Service's Business Daily.

These state guarantees allowed Landesbanks to borrow money more cheaply than other banks. But in 2001, the guarantees were abolished by the European Commission.

After the EU decision, Landesbanks had to change their strategy.

You cannot camouflage everything with the financial crisis Dr Werner Marnette, Schleswig Holstein minister

But he added: "They lost contact with local industries and developed strategies of becoming global players.

"So the origin of the crisis of the Landesbanks today is not a direct link to the current international financial crisis."

He said the mistake that HSH Nordbank had made was to purchase cheap money from the markets, but, having no customers for it, it invented new strategies.

"They stepped into the US real estate markets which, being more or less artificial, crashed with the crisis," Dr Manette said.

HSH Nordbank is co-owned by the states of Schleswig Holstein and Hamburg.

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