By SPIEGEL Staff
Even more objectionable is another merger case that the Berlin government is seeking to promote under the auspices of fighting the recession. The Herzogenaurach-based Schaeffler Group, a manufacturer of antifriction bearings, acquired tire maker Continental, a much larger company. Now Schaeffler is deeply in debt, and the Economics Ministry in Berlin is deciding whether to help the company with a loan guarantee. At stake is the future of more than 210,000 employees, who produce tires, brake systems and other parts.
But what Economics Minister Michael Glos sees as a consequence of the financial crisis is in fact the result of faulty corporate decisions. The story began in late 2007, when Continental acquired VDO, the automobile division of electronics giant Siemens. The executives at Hanover-based Continental not only failed to recognize that VDO was something of a problem child, but they also paid too much for it and have been deep in debt ever since.
Continental might have been able to overcome its problems alone. But the situation became dangerous when Schaeffler acquired its competitor. Instead of bringing together the economic strengths of both companies, as hoped, the new entity merely combines their debts -- to a grand total of €20 billion ($26 billion).
As a result, two once-healthy companies have gotten themselves into trouble through takeovers. This happens occasionally. But in the past hardly anyone would have hit upon the idea of the government using taxpayers' money to iron out the mistakes made by management during corporate takeovers.
But now that the financial crisis has taken hold in large sectors of the economy, there are apparently no longer any limits imposed when it comes to imagining how the state's influence can be expanded. But where is the limit? Under what criteria does the government decide into which industries it should and should not intervene? Most of all, how can it recognize whether a company's difficulties are attributable to the crisis or to bad corporate policies?
One thing is clear: Any intervention distorts competition, and weakens those competitors that are unable to crawl underneath the government's protective shield. Ironically, these are often the healthier companies.
The planned government bailout program for auto finance companies is a case in point. Chancellor Merkel and Finance Minister Steinbrück have already promised BMW, Daimler and VW that their banks will be able to resort to government loan guarantees should they run into problems. But why?
Until now, the principal purpose of auto finance companies has been to artificially stimulate sales. By offering low interest rates and attractive leases, they ensured that consumers who would normally have opted for a used car could afford a new vehicle. The system was especially beneficial to BMW, Mercedes-Benz and Audi.
But in the financial crisis, it is becoming more difficult for the auto finance companies to secure capital. They are forced to charge higher interest rates and are thus no longer able to offer discount financing to their customers. This may be bad news for the manufacturers, but it is not a justification for injections of government capital, as long as the auto finance companies do not run into difficulties themselves. Nevertheless, Volkswagen Financial Services and its subsidiary, VW Bank, have already applied for government loan guarantees for more than €10 billion ($13 billion). They are expected to receive between €4 billion and €5 billion. This enables them to borrow new capital at attractive interest rates and, in turn, offer low-interest car loans.
Even worse, the aid for VW Bank has triggered greed among the competition. Daimler CEO Dieter Zetsche says that his company's bank is not in trouble. But if competitors are begging for government bailouts, he cannot exactly hold back, he says, noting that failing to do so would put his company at a competitive disadvantage. Economists call this phenomenon a "spiral of intervention," when one government bailout triggers a series of new rescue programs.
It is no accident that the government is especially susceptible when it comes to the auto industry. To quote Chancellor Merkel, the auto industry is part of the "core of our industrialized nation."
This attitude is reflected in politicians' reactions to the carmakers' proposals, even when it comes to such questionable plans as the scrap premium. Under the proposed program, anyone who agrees to scrap his car when it is at least nine years old and buy a new one instead will receive a government subsidy of €2,500 ($3,300). The government hopes that the incentive program will stimulate car sales.
But whether the plan will actually work remains to be seen. It is clear that companies like Mercedes-Benz, Audi and BMW will hardly benefit from it, because consumers who drive such old vehicles are more likely to buy an inexpensive small car -- an Opel or a Ford, say -- than an expensive luxury car after scrapping it. They might even choose an Italian or South Korean car. Thus, the scrap premium could certainly save jobs, but not necessarily in Germany.
The notion that aid for individual companies or industries can prove to be useless is nothing new. From the government guarantee for the ailing Holzmann construction group to the rescue of the Maxhütte steelworks, politicians have often attempted to keep struggling companies afloat with government funds. But they have rarely been able to avert bankruptcy, in most cases merely succeeding at delaying it somewhat.
It is no less dangerous to turn the government into an arbitrator of competition. The government is about to find this out with its planned guarantee program. It intends to provide up to €100 billion to ensure that major corporations can secure loans at reasonable terms.
The program is well-intentioned, but it means the government will have to permanently grapple with difficult questions like: Which companies are in hot water through no fault of their own, and deserve to be saved? "No government official has the answer to questions like that," says Johann Eekhoff, a spokesman for the Kronberg Circle, a group of liberal economists. "They lack the necessary expertise."
There is a risk that ailing companies will be kept alive artificially and for too long -- and at taxpayer expense. In addition, the program will result in the state-owned KfW becoming involved in the traditional business of private financial institutions.
There can be few objections to this, as long as non-state-owned banks continue to refuse to issue loans. But who can guarantee that the government's economic promotion agency will withdraw from the market in a timely manner, so that the banks can reclaim their turf?
"There is no exit strategy," says Rürup from the German Council of Economic Experts. He believes that the government must clearly define when it plans to withdraw again. "The planned guarantee and loan program should only be a temporary measure, and it should expire once lending by banks and the capital markets is functioning properly again."
There are also those who question whether KfW is even capable of living up to its expanded responsibilities. During the financial crisis, the actions of the Frankfurt-based government bankers bordered on incompetence on several occasions. For months, they failed to notice the dangerous speculation activities of KfW's subsidiary, IKB. Their naiveté cost billions.
KfW became the laughing stock of the industry when it transferred €350 million ($462 million) to Lehman Brothers after news of the investment bank's impending bankruptcy had become public. At that time, KfW itself was on the verge of liquidation -- and now it is supposed to save the German economy.
This is only one of the reasons why many economists fear that the government is taking on too much. Politicians run the risk of overextending the government's financial strength with the billions in bailout programs, says Clemens Fuest, an economist at Oxford University and chairman of the economy advisory board at the Federal Ministry of Finance. According to Fuest, the government lacks the necessary expertise and personnel to invest in companies on a large scale. "There aren't even enough deputy ministers to serve on all those supervisory boards."
In the current crisis, Fuest advises, the government should rescue the banks and cushion the recession with economic stimulus programs. But he has a low opinion of targeted assistance for individual companies or sectors. All this does, says Fuest, is impair their willingness to help themselves.
This could well be the case with ailing porcelain manufacturer Rosenthal. To preserve the company, a spokesman said last week, Rosenthal is currently in negotiations with a rescuer with no government mandate: a private investor from Italy.
DIETMAR HAWRANEK, ASTRID LANGER, CHRISTIAN REIERMANN, WOLFGANG REUTER, MICHAEL SAUGA
Translated from the German by Christopher Sultan
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