May 13 (Bloomberg) -- Germany has allocated enough funds to deal with toxic assets, Finance Minister Peer Steinbrueck said, seeking to tackle the $1 trillion banking crisis without forcing taxpayers to spend more on bailouts in an election year.

“The public funds that we’ve been given to shield the banking sector are sufficient,” Steinbrueck told reporters in Berlin today. The government’s Soffin bank-rescue fund has 260 billion euros ($356 billion) left, with a maximum of 190 billion euros in toxic assets still on banks’ books, he said.

Chancellor Angela Merkel’s Cabinet backed Steinbrueck’s model for so-called bad banks today, months after the U.S. and U.K. identified solutions to relieve banks. Business owners have complained that Steinbrueck stalled as he sought to limit the burden to taxpayers before Sept. 27 national elections.

“I can well understand politicians when they say that we can’t simply unload the burden on taxpayers,” Manfred Weber, head of the BDB representing lenders including Commerzbank AG and Deutsche Bank AG, told Deutschlandradio. “But you also have to take into account: does the whole thing still work, or are we just creating new problems?”

Steinbrueck’s Social Democrats and Merkel’s Christian Democrats, coalition partners and election rivals, have batted the issue of toxic assets back and forth as the economy, Europe’s biggest, endures its worst recession since at least World War II. The government aims for parliament to vote on the plans to allow banks to swap toxic assets for guaranteed bonds before the July 3 summer recess, Steinbrueck said.

DAX Rises

Germany benchmark DAX index was up 0.1 percent to 4.859,72 at 11:35 a.m. in Frankfurt.

Under Steinbrueck’s draft published May 11, financial institutions would deposit assets in bad banks at 90 percent of their book value and then sell bonds at that value, paying an annual fee for the guarantee. The lenders will pay Soffin the difference each year between the assets’ discounted book value and “fundamental” values as determined by auditors.

Forcing participating banks to accept a writedown of 10 percent is “unjust because some banks have already written down their assets fairly well while others haven’t done so,” Dirk Becker, a Frankfurt-based banking analyst at Kepler Capital Markets, said in an interview.

At the same time, “it’s good that the risks remain with the owners of the banks rather than getting passed on to taxpayers,” Becker said. “That doesn’t make the proposal particularly attractive, but it’s not the taxpayers’ fault that banks went shopping for these products.”

‘Outlook for Recovery’

Bundesbank President Axel Weber said in a speech in Munich yesterday that “the outlook for recovery in the German financial system and economy at large” is linked to purging lenders’ books of toxic assets. Germany’s economy will contract 6 percent this year with unemployment rising by more than 1 million this year and next, according to government forecasts.

That is so far bolstering Merkel’s coalition government as voters seek stability during the crisis. Merkel’s Christian Democrats and the Social Democrats both gained 1 percentage point, to 36 percent and 26 percent respectively, according to a Forsa poll for Stern magazine published today. Merkel’s favored coalition partner, the Free Democratic Party, slid 2 points to 14 percent.

Paul Mortimer-Lee, chief economist at BNP Paribas SA in London, said that the German plan amounted to “an accounting sleight of hand, moving assets off bank balance sheets in the same way that banks used SIVs and conduits to sidestep regulatory burdens in years past,” he said in a note. He equates the plan to “a time machine where losses too big to deal with today are shuffled off into the future.”

State Lenders

Lawmakers such as Albert Rupprecht, a member of Merkel’s bloc and chairman of the parliamentary committee that controls the Soffin fund, have criticized Steinbrueck for failing to expand the bill to include help for state banks. State lenders are potentially the program’s biggest customers, holding some 500 billion euros of an estimated 853 billion euros of toxic debt on German banks’ books, according to Bloomberg data.

Steinbrueck also gave an “outline” plan for state lenders’ toxic assets that would leave the liabilities in the main with the owners.

“Much will depend on the details,” the BDB’s Weber said of the bad bank bill to go to parliament. “You can still wreck a perfectly good and useful tool that’s indispensable in the current situation if it’s piled high with too many layers and if the conditions in certain cases aren’t right.”

To contact the reporter on this story: Brian Parkin in Berlin at bparkin@bloomberg.net

Last Updated: May 13, 2009 05:53 EDT