German Finance Minister Blames Bank for Northern Rock

German finance minister Peer Steinbrueck yesterday blamed the Bank of England for the collapse of Northern Rock and the loss of 2,000 jobs after he savaged the central bank for not pumping enough liquidity into money markets last year.

Unlike the US central bank and its counterpart on the continent, the Bank of England failed to support the banking sector with vital loans, Steinbrueck told the German parliament. He said the main reason Germany and the US avoided a run on a bank was the swift reaction of the European Central Bank and the Fed to lend billions of pounds at crucial moments.

He said: "The policy of the Fed and ECB to supply the market with liquidity was right. A central bank that didn't do this in Great Britain led to people standing in long queues outside."

Steinbruck, criticized at home for the multi-billion euro bail-out of industry lender IKB, stricken by the sub-prime crisis, added: "Just imagine if we'd had these kind of scenes in Germany that harked back to the 1920s."

His comments will embarrass Mervyn King, the Bank of England governor, who has sought to convince MPs and the City that he acted to support banks in need of finance last summer when the US sub-prime crisis triggered a credit squeeze.

King has maintained that he matched his counterparts with a more subtle, behind-the-scenes injection of liquidity and Northern Rock was brought down by a series of failures, mainly of regulation.

Steinbruck's comments also come at a sensitive time for the government, which is preparing to push through 2,000 redundancies at Northern Rock as part of an effort to stabilize its finances and pay back the estimated £25bn it owes the exchequer.

The Newcastle-based bank, which was nationalized in February, will enter talks with unions next week to discuss how to reduce the workforce by around a third from its peak of 6,000.

Unions are seeking promises from the bank that it will resist compulsory redundancies and rely instead on natural turnover and volunteers.

A spokeswoman for the union said a team of negotiators headed by national officer Karen Reay plans to sit down with the bank's management on Thursday to begin thrashing out a deal.

Ron Sandler, the bank's chairman, said an HR1 form, which is legally required ahead of a mass redundancy program, would be sent to ministers to clear the path for negotiations. He said he wanted to have a constructive discussion with unions during the required 90-day consultation period.

A spokesman for the bank said: "We are about to start a consultation with the unions. The process will start with a submission to the Government, which will go-ahead next week ahead of meetings with staff and unions."

It is understood the bank's precarious finances have put Sandler under pressure to accelerate the redundancy program and achieve the cuts in a matter of months rather than several years originally envisaged by ministers.

The government is rapidly losing hope that the bank can minimize the political impact of the job cuts in its north east heartlands and will be forced to carry out swift and heavy compulsory redundancies.

Sandler said at the time of the nationalisation that the vast majority of job losses will be concentrated in Newcastle and not the bank's 78-strong branch network, which is key to its aims to boost saving deposits.

Repayment of the government's £25bn loan is the bank's first priority, but with the credit crunch continuing it is expected Northern Rock will be forced to delay payments. Competition in the savings market also remains intense, further harming its ability to raise funds and bolster its finances.