Source: guardian.co.uk

Chancellor Angela Merkel looked crumpled when she stepped in front of the press in Berlin on Sunday and announced an extraordinary full deposit guarantee for up to 568bn euros in German savings. She will have had two things in mind, in this order: safe savings and stupid bankers. These are two of the reasons why Merkel has been generous when it comes to giving guarantees for private savers, and cautious about helping out banks.

She has realised that something is very wrong. The credit crunch had penetrated Germans’ consciousness. The financial market is already fearful, and in everyday life fear can easily turn into panic. You cannot switch on your TV in Germany these days without a creepy commercial asking if your bank is still alive.

When news of the first bailout plan for Hypo Real Estate broke on Saturday night, Merkel knew she had to rebuild trust – just as Ireland did. The pictures of Northern Rock customers queuing up to withdraw their savings are still fresh in Germans’ minds. A bank run now seems at least possible in Germany. The country hasn’t seen such a loss of confidence since 1945.

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