Berlin - A Berlin inquiry into alleged dithering by the German government was told Wednesday that a failure of bank Hypo Real Estate (HRE) a year ago would have have rocked the world financial system.

Chancellor Angela Merkel's government announced a bail-out of HRE, parent of Germany's main issuer of covered bonds, on September 29, two weeks after Lehman Brothers of New York filed for bankruptcy.

In a related development, HRE is being sued by former investors, court officials in Munich said.

"Absolute chaos would have broken out on world financial markets" if it had gone down too, said Wolfgang Sprissler, who was chief executive of HRE at the time.

The consequences would have been worse than those triggered by the Lehman collapse. The banks were roughly similar in size, but HRE's failure would have created a new "epicentre" in Germany, he said.

He was testifying to a parliamentary commission of inquiry appointed two months ago. It aims to report on the eve of Germany's September 27 general election.

An opposition legislator said this week she hoped to summon Merkel to testify. The opposition charges she responded inadequately. Munich-based HRE needed further bail-outs later and has since been nationalized.

Sprissler said everybody at a meeting of HRE and the government in the last week of September agreed action was vital to avert HRE going bankrupt. The first bail-out injected 35 billion euros (50 billion dollars) into HRE.

Ultimately, more than 100 billion euros was needed to steady it.

Next week, German Finance Minister Peer Steinbrueck is to testify to the commission. On Tuesday, his former aide Thomas Mirow denied the HRE crisis had been foreseeable in the summer of 2008.

In Munich, a court spokeswoman said institutional investors had filed claims totalling 200 million euros in connection with their losses from holding HRE stock. They claim HRE misinformed them.

Finance Minister Steinbrueck criticized the claims, saying, "Since HRE is almost entirely state owned, the claims are against the federal government and the taxpayer."(dpa)