Germany has backed away from legislation that would allow it to take control of some of its banks by expropriating shareholdings after members of the ruling coalition expressed serious misgivings.

A dispute with JC Flowers, the US private equity company, over its holding in stricken lender Hypo Real Estate prompted the government to leak a draft law that would allow it to buy compulsorily all the shares in any bank deemed a risk to the economy.

But members of Chancellor Angela Merkel’s Christian Democratic Union said yesterday they were concerned that the legislation could clash with articles 14 and 15 of the constitution, which allow expropriations only under strict conditions.

Financial Times