Germany leads Hypo Real Estate rescue talks

"We will see how we can clean up the mess that has been presented to us," Bloomberg quoted Finance Ministry spokesman Torsten Albig as saying. "Everyone involved in this is hopefully aware of their responsibilities."

The government and the Bundesbank have said that Hypo Real Estate, the nation's second-biggest property lender, is too big to fail. The Belgian government is also negotiating to rescue Fortis, that nation's largest financial-services company, after a previous bailout also went awry amid the intensifying global credit crunch.

"All parties involved including banks and insurers are being invited by the government to meet once again, and I'm pretty shocked that this bank's management has revealed another liquidity gap of an unforeseen size," German Finance Minister Peer Steinbrueck said in Berlin on Sunday in comments broadcast by ARD television.

"We will have to start over again from last weekend's meetings. Hypo Real Estate has to be stabilized otherwise the damage would be unpredictable."

The financial system in Europe has been badly hit by the fall-out from a crisis which began in the United States when the housing market collapsed and bad mortgage debts multiplied.

The escalating crisis has paralyzed wholesale money markets, caused huge volatility on stock markets and changed the banking landscape in a matter of weeks.

Leaders of the biggest European countries met in Paris on Saturday to coordinate a response after the U.S. authorities approved a $700 billion bank bailout to buy up toxic assets.

French President Nicolas Sarkozy, who called the emergency meeting, said governments needed to act in a coordinated manner.

GERMAN EFFORTS
The woes of Munich-based HRE, which lends money for property projects and to governments, was a headache for German Chancellor Angela Merkel who attended the Paris summit where she said that those responsible for the crisis must contribute to resolving it.

"We are fighting for the future existence of the company," HRE spokesman Hans Obermeier said.

Neither HRE nor the banks and insurers involved had informed the government before the collapse of the rescue package, German finance ministry spokesman Torsten Albig said. "That is certainly very surprising," he added.

The credit crisis is one of the factors pushing many industrialized countries towards recession.

"The world economic situation is very worrying," International Monetary Fund (IMF) managing director Dominique Strauss-Kahn said on Saturday, adding the IMF would be cutting its world economic growth forecasts.

France said on Sunday it remained in favor of an interest rate cut by the European Central Bank to give a shot in the arm to the continental economy.