Following a meeting with the nation's top bankers on Tuesday, German Finance Minister Peer Steinbrueck said the nation's top bankers and industry chiefs had pledged to work together to promote the free flow of credit and support the economic recovery.

Following the meeting, Steinbrueck told reporters that Germany was not experiencing a "nation-wide credit squeeze", although bottlenecks and harsher lending conditions were creating problems for companies.

Steinbrueck stressed that it was not only up to banks to provide loans, but for companies seeking finance to investigate all avenues of obtaining financing.

The president of Germany's DIHK chambers of industry and commerce, Hans Heinrich Driftmann, said small to medium-sized businesses in particular were finding it difficult to obtain loans due to rising costs and banks' increasing demands for collateral.

Multi-billion-euro plan

Earlier on Tuesday German Economics Minister Karl-Theodor zu Guttenberg unveiled a multi-billion-euro plan to lend directly to banks and insurers in an effort to fight the lingering effects of the credit crunch.

The 17.5-billion-euro ($25 billion) package is aimed at renewing confidence among financial institutions and thawing credit flows that froze in the wake of the sub-prime mortgage crisis.

The program is part of a larger 115-billion-euro economic recovery fund and does not require the government to inject new cash into the economy.

Guttenberg said the plan would specifically target Germany's "Mittelstand" - the small and medium-sized firms that make up the backbone of the economy.

"We want to ensure that small and medium-sized companies in particular can gain access to enough credit, even in economically difficult times, to realize important projects," he said in a statement.

Two-pronged approach

Under the minister's plan, a fund of 10 billion euros is to be set aside for the state-backed development bank KfW, which is to make direct loans to German businesses.

The other 7.5 billion euros is to be used to provide manufacturers and exporters with guarantees and support financial institutes that insure such companies against defaults.

The ministry said the final details of the program still need be approved by lawmakers, and that the scheme is unlikely to be up and running before October.

Green shoots need protection

Business groups have warned that a continued credit crunch in Germany could throttle the second-quarter upswing that saw the economy officially recover from its worst recession in more than 60 years.

The president of the BGA foreign trade federation, Anton Boerner, criticized the government's credit plan for lacking volume and being difficult to implement.

Earlier, the director-general of the BDI German employers' group, Werner Schappauf, told the Handelsblatt newspaper that politicians must prepare themselves for the financial situation to worsen.

"The first tender green shoots of recovery could quickly dry up if companies find themselves without liquidity," Schappauf said.

sje/AP/AFP/Reuters
Editor: Chuck Penfold