Merkel: global economy faces severe test since 1920s

BERLIN, Oct. 15 (Xinhua) -- The global economy is facing the most severe test since the big crisis in the 1920s, German Chancellor Angela Merkel said here on Wednesday.

Merkel made the warning when she spoke to the German parliamentwhen explaining her government's measures tackling the global financial crisis.

Merkel said the banking industries in the Europe's biggest economy was virtually inoperative during the past weeks and the stock market saw fateful price spiral.

"Therefore, the government must respond," she said.

Earlier on Monday, Merkel announced a huge financial rescue plan worth of some 500 billion euros (about 685 billion U.S. dollars), amounting to about 20 percent of Germany's gross domestic product.

The plan has been tabled to the German parliament for review and vote.

Speaking to the German parliament, Merkel said the German economy is also facing its most serious challenge since the big crisis in the 1920s.

She noted that her government's financial rescue package was aimed at tackling the challenge, which would convince the people that there will be no lasting economic slump in the economic engine of the European Union (EU).

Merkel also said the German companies are now crisis-proof.

Later on the day, Merkel will fly to Brussels for an EU summit aimed at dealing with the financial crisis.

Merkel told the parliamentarians that the EU level short-term adjustment of the European accounting rules to U.S. Standards could be decided soon, thus making the European banks more flexible rules in the financial statements for the third quarter use.

Merkel said further step should be taken to amend the international rules governing the financial markets, like increasing more transparency in the rating agencies and financial products.

Moreover, the role of the International Monetary Fund (IMF) should also be strengthened.

Merkel announced that the German federal government had invited a group of experts to elaborate and review the proposals for new rules on financial markets.

Earlier on Tuesday, German Finance Minister Peer Steinbrueck said the governing members of banks and financial institutions should have their annual income capped below 500,000 euros (about 685,000 dollars).

Merkel urged the banking industry to engage constructively and be self-critical in the reform work.

Merkel said the government's financial rescue plan is a rare case, which was aimed to "build trust" in the financial market, to "protect the citizens but not to protect bank interests."