German state premier resigns over subprime crisis


Dresden (Germany) : Premier of Saxony, Georg Milbradt, has resigned after the subprime financial crisis blew a hole in the budget of his eastern German state, members of his Christian Democratic Union (CDU) party said Monday.

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Milbradt was the first German political leader to be toppled by the crisis. His state’s bank, Sachsen LB, had to be sold to another bank after accumulating enormous liabilities from investing in so-called structured-finance products linked to the US home mortgages.

The state, one of 16 making up Germany, remains liable for most of the Sachsen LB losses. The chief of the bank’s new owner, LBBW, said at the weekend the “worst case” would be a claim of 1.2 billion euros ($1.9 billion) against the state.

While a series of executives have lost their jobs for failing to understand the risks of structured finance, the toll in Germany has also been political, because state-run banks tried to boost their earnings with the risky securities.

Saxony is the most industrially advanced of former communist eastern Germany’s states, with a car and a semi-conductor industry that were lured there by state credit and tax rebates.

Fellow Christian Democrats said Milbradt would be replaced as premier and CDU state leader by the state’s finance minister, Stanislaw Tillich. An announcement was expected at noon in the state capital Dresden.

Milbradt has been premier since April 2002, after becoming state leader of the CDU in September 2001.