'Idiotic Blathering' Fight Erupts in Berlin over State Aid for Private Firms

Even as Chancellor Angela Merkel's government continues to pat itself on the back for saving Opel from bankruptcy, economic experts are slamming the deal as a departure from the market economy. The fight is emerging as a major issue in the run-up to September's federal election.

Germany's Social Democrats have been in overdrive lately. In addition to presenting themselves as the saviors of struggling private sector giants, they've also been trying to anchor their savior status in a campaign platform ahead of September's general election.

German Economics Minister Karl-Theodor zu Guttenberg has come under fire this week.

German Economics Minister Karl-Theodor zu Guttenberg has come under fire this week.

According to the financial daily Handelsblatt, the center-left party wants to establish clear guidelines for when the state can help a private company. State money, the party's draft platform reads, can only be used when the company's business plan is "sustainable" and "future oriented."

Or, the party could add, when it becomes politically convenient to do so. That, at least, seems to have been the rationale behind Foreign Minister (and SPD candidate for the Chancellery) Frank-Walter Steinmeier's February promise to Opel workers that he would do all he could to save the company.

The party repeated the strategy over the weekend, with an eye toward propping up the wobbly department store chain Karstadt and its parent company Arcandor. "We want to show that we don't just save industrial jobs, but also in the service sector and jobs for women," party head Franz Müntefering told the paper Tagesspiegel am Sonntag.

But with critique against state aid for private companies now mounting in Germany, the SPD may soon be forced to change its tune.

Danger of Further Interventions

"I am growing concerned that we are taking giant strides away from elementary principles of the market economy and I don't know if it can be reversed after the general elections," Justus Haucap, head of Germany's Monopolies Commission, wrote in a contribution for Handelsblatt.

Haucaup was seconded by Wolfgang Franz, a member of the German Council of Economic Experts, which advises Berlin on economic questions. "Following the state measures for Opel, the danger of a flood of further state interventions is very large, especially given the approaching campaign," Franz told the newspaper. Addressing Arcandor's difficulties, he said: "The Karstadt problems have absolutely nothing to do with the current recession. They began well before that."

Further accusations of political meddling came from Martin Kannegiesser, head of Gesamtmetall, a union representing the metalworking and electrical industry. "It seems that the economy is becoming politicized," he said in the Tuesday edition of the Berliner Zeitung. "The Opel solution is a sin resulting from political opportunism."

The salvo from leading economics experts echoes a bitter battle currently being waged within Chancellor Angela Merkel's governing coalition. Despite having managed to come up with a plan to save the German carmaker Opel from following its parent company General Motors into bankruptcy, not everyone in the Berlin cabinet is pleased with the deal.

Indeed, Economics Minister Karl-Theodor von Guttenberg -- a member of the Christian Social Union, which is the Bavarian sister party to Merkel's Christian Democratic Union -- argued until the very last minute in favor of initiating bankruptcy proceedings for Opel. Reports in the German press indicate that he only backed down after Merkel made her position clear. The government ultimately agreed to making €1.5 billion ($2.12 billion) in bridge financing available to Opel, while opting to accept an offer by the Canadian auto parts company Magna in conjunction with the Russian bank Sberbank to take a controlling stake.

Appropriate Consequences

Now, Guttenberg finds himself as the favorite target of attacks from the SPD. Deputy SPD floor leader Joachim Poss accused Guttenberg on Tuesday of "idiotic blathering about insolvency" and said "once the government weighs the risks, an economics minister has to either support the solution decided upon, or reject it and draw the appropriate consequences." Some have interpreted Poss' statement as an invitation for Guttenberg to resign.

Chancellor candidate Steinmeier also blasted Guttenberg on Tuesday saying "I expect him, as economics minister, to ensure that the further process runs without difficulties." Finance Minister Peer Steinbrück, likewise a member of the SPD, said that he was "somewhat annoyed" by Guttenberg.

The dispute only promises to get worse in the coming weeks. Arcandor, which owns the nation-wide department store chain Karstadt in addition to the travel industry giant Thomas Cook, has requested loan guarantees worth €650 million ($920 million) in addition to a €200 million loan from the state-owned development bank KfW.

In theory, the money is there for the taking. Back in February, the German government approved a €40 billion fund for ailing companies as part of the country's second economic stimulus package. But the fund was established to help those firms that were economically healthy prior to the financial crisis. The cut-off date is July 2008.

Both Opel and Arcandor began their slides well before that date, a fact which has turned both companies into a political issue. Indeed, even as Guttenberg appeared to sacrifice cabinet discipline for ideology during the Opel debate, he may ultimately emerge as the one participant who strove to protect German taxpayer money from political expedience. On Tuesday, he told the daily Passauer Neue Presse that "the pledges of help that were given (by Steinmeier to Opel) definitely undermined the company's negotiating position."

Guttenberg is equally skeptical of efforts to save Arcandor, though he has ordered a committee to take a close look at the possibility.

And the SPD? Hans Eichel, a senior SPD politician and former finance minister under Chancellor Gerhard Schröder, warned against a competition among politicians when it comes to saving German firms. "The resources limit the number of lifelines," he said.

cgh -- with wire reports


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