The World from Berlin Berlin Making Hollow Threats to Banks Over Credit Crunch

German politicians say the banks have had the carrot -- billions of dollars in financial aid. But they're now threatening banks with the stick in the form of new legislation unless they start lending more cash to companies. But media commentators aren't taking the threats too seriously quite yet.


At the end of last week Germany's own plan for "bad banks" was approved. This will see the toxic assets of German banks dealt with in special government-backed bad banks. But over the weekend several prominent German politicians -- including Finance Minister Peer Steinbrück and Economics Minister Karl-Theodor zu Guttenberg -- voiced their concerns about where all those billion were actually going and asked why the credit crunch was not abating.

Critics of the German banking system: Steinbrück (L), Guttenberg, and Steinmeier (R) have called the banks' unwillingness to lend more unacceptable and threatened them with regulatory legislation.
DPA; AP; AFP

Critics of the German banking system: Steinbrück (L), Guttenberg, and Steinmeier (R) have called the banks' unwillingness to lend more unacceptable and threatened them with regulatory legislation.

Bankers were accused of using the extra funds inconsiderately -- investing in federal bonds or stashing the cash in high interest accounts -- and not extending more credit to German industry. Analysts say that there is concern that German lending, which has remained relatively steady, could slow down in the second half of the year, choking off any hope of a recovery from Germany's worst recession since the 1930s.

Guttenberg of the conservative Christian Social Union (CSU) described this as "unacceptable" and Steinbruck of the Social Democrats (SPD), traditionally Guttenberg's opponent in free market matters, agreed. Steinbrück threatened tough measures if banks refuse to extend more credit to firms crying out for cash.

Meanwhile Volker Kauder, the parliamentary floor leader of the conservative Christian Democrats, said that "in the first instance, the banks must use this cheap money to finance the German economy -- rather than themselves."

Foreign Minister Frank-Walter Steinmeier (SPD) also weighed in with a bit of intimidation. "If in the next few weeks we don't see the banks prepared to fulfill their duties as service providers to the German economy, then we will have to consider taking further steps."

Despite the fact that these opinions were coming from both the political right and left, most local commentators were rather dismissive, saying the situation was far more complex than politicians were making it out to be and that such comments had more to do with electioneering -- Germany's general elections are in September -- than sound economic theory or any actual, existing legislation.

The Financial Times Deutschland says that the argument politicians are expounding is way too simplistic and that rather than dictating how banks do business, they should get into the lending business themselves:

"To tell the banks off like this smacks of electioneering. It also helps distract attention from the government's own economic strategies. And for the German businesses weathering the worst economic crisis in 60 years, it doesn't help a bit."

"The most recent data indicates that every day it's getting more difficult for businesses to obtain credit from their banks. But this is normal in a recession. Negative outlooks and falling orders affect one's credit rating and therefore the preparedness of one's bank to lend money. That effect is bolstered by equity ratio guidelines, as outlined by the Basel II banking accord, which states how much capital banks should put aside in order to deal with running issues like debt defaulters. The banks that are looking more closely at creditors and choosing to park their funds in the central bank are actually acting rationally. Whereas making German banks the whipping boy for the credit crunch is not rational."

"Banks that give out credit willy nilly now, just because they have been asked to by politicians, will be first on the list for financial aid next year. And you can just imagine what the politicians are going to say then."

"If they are so worried then Steinbrück and co … should decide -- elections ahead of them, summer holidays behind them -- to extend credit all by themselves either through their own KfW development bank or through the auspices of the European Central Bank."

Business daily Handelsblatt writes that the political grandstanding is unsettling and potentially an indicator of deeper problems with the state's willingness to play financial savior to all and sundry:

"Not once during this financial emergency has the government come up with any direct intervention. Carsten Schneider, the SPD parliamentary group's chief budget expert, demanded answers on this - but his was a voice lost in the desert. And he was criticized from all sides, including by his party colleague Steinbrück. So it seems that even a year after the collapse of Lehman Brothers bank, any kind of government intervention is still viewed suspiciously, a remnant of the GDR."

"They could create them but right now Steinbrück and Guttenberg are threatening the bankers with weapons they don't actually have. It's like holding a water pistol to someone's head. And it's also about making it look as though they are taking the banks to task - that impression will come in handy should the credit crunch get even worse."

"When you're running an election campaign, it's important to make an impact. But it's not exactly building confidence. The government has given the impression that they are going to leap in whenever there isn't enough money. But with this sort of thing, they're indicating that their budget is already over extended."

Center-right Frankfurter Allgemeine Zeitung says that politicians are too quick to forget lessons learned at the beginning of the economic downturn.

"All the talk is of banks getting money for nothing and not giving anything back. But that is just not true. In the first few months of this year German banks extended just as much credit as they did last year."

"There's a credit crunch, this is the result of a recession, and the outcome of that is more creditors defaulting on loans. There's a tidal wave of debt swamping the credit market. And the instrument once used to regulate this -- the securities market -- is dead because of the financial crisis."

"However, caught up in the national anger at banks, such basic facts don't really seem to count. At the beginning of this crisis we all saw what happens when credit is given out irresponsibly. There's a lesson to be learned from all this: credit comes at a price."

Left-wing daily Die Tageszeitung says that any money that does come to the banks from the state should come with conditions --particularly if the bankers won't behave appropriately.

"What can the bankers possibly want next? Millions of euros worth of aid has been given them. And what do they do with it all? They save it up in the European Central Bank, buy federal bonds or consider moving their money to where the interest rates are highest. No wonder then that trade associations and labor unions are getting upset with them. And now the politicians are angry too."

"How can they persuade the banks to behave? Well, that's the wrong question. It's not about persuasion. It's about ensuring that credit facilities are available to businesses -- this will protect employees and keep jobs safe. The bankers were only too happy to take the carrot. But now, the only option is the stick."

"Any money that comes from political institutions must come with conditions. As in, you're only getting this aid if the volume of credit rises. The system won't break down if one or two banks go under. It will if the economy is cut off from credit."

Cathrin Schaer, 2.30 p.m. CET

Article...


© SPIEGEL ONLINE 2009
All Rights Reserved
Reproduction only allowed with permission


TOP
Die Homepage wurde aktualisiert. Jetzt aufrufen.
Hinweis nicht mehr anzeigen.