The German government and the banking sector have agreed on a new €50 billion rescue package for stricken bank Hypo Real Estate, the finance ministry said.
On top of a public-private deal last month to extend a €35 billion credit line to Germany's fourth biggest bank, the financial sector will offer an additional €15 billion.
In a statement issued tonight, the finance ministry said: 'With this mutually agreed solution, the institution will be stabilised and with it, Germany strengthened as a place to conduct finance in difficult times.'
Earlier today, Chancellor Angela Merkel said her government was scrambling to salvage the HRE rescue after a banking consortium withdrew from the plan.
HRE's announcement yesterday sent shockwaves through Europe's biggest economy.
The rescue bid was the biggest in German history and came after HRE was sucked into the global financial turmoil through its inability to refinance debt, one of many high-profile European emergency cases in the past two weeks.
Officials had raced to reach an accord before Asian markets opened tomorrow fearing a final collapse of HRE and heavy downward pressure on all German banking shares.
German government offers savings pledge
Earlier, the German government announced that it had offered an unlimited guarantee for all private savings accounts.
Chancellor Angela Merkel said all deposits are safe.
She made the statement during talks between officials from the German Central Bank, the Financial Regulator and the government on the crisis at HRE.
Hypo Real Estate was the fifth German bank to be bailed out in the wake of the credit market turmoil stemming from the US.
Yesterday, the leaders of Britain, France Germany and Italy agreed to work together to support institutions that got into difficulty.
After a meeting of the leaders in Paris, President Sarkozy said individual countries would operate with their own methods but in a co-ordinated manner.
The leaders called for an international conference before the end of next month to look at reforming the global finance system.
Barroso welcomes pledge
Meanwhile, European Commission head Jose Manuel Barroso has welcomed a pledge by Europe's main economies to work together on the global credit crisis.
He said it was a 'step in the right direction'.
He said that he thought 'we did our maximum in the face of a very grave and serious situation that Europe did not create but of which it is suffering the effects'.
France, Italy, Germany and UK leaders held an emergency summit in Paris yesterday, at which they agreed to co-ordinate national responses to the crisis.
While the four powers put on a united front, there was no talk of a joint bailout fund for European banks, on the model of the $700bn US package approved on Friday, after the idea was shot down by London and Berlin.
But Mr Barroso said it was unfair to compare the European and US responses to the crisis.
'Europe is made of 27 countries. We cannot have the same unity as the Americans. Plus you need to consider that the situation in Europe is better than that in the United States', he said.
The European leaders called for a looser application of EU deficit and state aid rules in the face of the credit crunch, amid tensions over how much leeway to allow.
Asked about a relaxing of the rules, Mr Barroso warned that this must not be a pretext or an excuse to overshoot EU deficit limits, but said adjustments could be agreed by EU finance ministers on a case-by-case basis.
