Denmark agrees on EUR 13.4bn line of credit to banks

(COPENHAGEN) - Denmark's main political parties agreed Sunday on a 100-billion-kroner (13.4-billion-euro, 17.8-billion-dollar) line of credit to the country's banks, the centre-right government said.

"The credit package is aimed at combating the risk of businesses and individuals ending up in a credit pinch where they are unable to loan money from financial and mortgage institutes for sound projects," the ministry of economic and business affairs said in a statement.

The government plans to present a bill to parliament in the coming week, and after a speeded-up procedure it is expected to enter into force in February, the ministry said.

The offer is open to banks until June 30.

The interest on the loans will be determined separately for each individual institution -- banks with financial problems will pay higher interest, for example -- but on average the interest will be around 10 percent, the statement said.

Banks that take advantage of the line of credit will see restrictions imposed on remunerations to the bank's management, the ministry said.

Economic and Business Affairs Minister Lene Espersen and Finance Minister Lars Loekke Rasmussen said in a joint statement the credit package was agreed upon because it was "necessary to take action."

"If we don't take action, there is a significant risk that even healthy businesses might not be able to loan enough cash to secure their continued operations, workplaces and growth, which would accelerate further the downturn in the economy," they said.

"It is this negative spiral that a broad majority in parliament have agreed to stop," they said.

The agreement was reached by all parties represented in parliament except the extreme-left opposition Unity List.

The Danish government in December slashed its growth forecasts for 2008 and 2009, predicting that the economy would contract by 0.2 percent in 2009 after growing 0.2 percent in 2008.

Denmark's economy is expected to widen by 0.7 percent in 2010, it said.

In October, the Danish parliament passed an emergency bill to set up a fund worth 35 billion kroner (4.68 billion euros, 6.25 billion dollars) to aid banks and their customers threatened by the global financial crisis.

Under that plan, Denmark's 140 banks are to inject 35 billion kroner, the equivalent of two percent of the country's gross domestic product, into the fund over the next two years.

The fund will be used to assist financial institutions in difficulty and guarantee the deposits of customers, including in subsidiaries of Danish banks abroad if necessary.