German Chancellor Angela Merkel doesn't lose her cool very often. But she did when she heard that Deutsche Bank CEO Josef Ackermann was calling for a new bailout fund for the financial sector. In fact, Merkel was furious.
It's also very rare to see Merkel publicly attack someone. Even during the recent election campaign, she was extremely reluctant to go after her opponent. But she was not about to let Ackermann get away with what he'd done. She waited four days -- and then she made her move.
Two Fridays ago, Merkel delivered a speech at a management conference sponsored by the daily newspaper Süddeutsche Zeitung. After a while, she said that "there's a certain fellow, who works in the financial sector, who is -- to put it mildly -- shooting his mouth off a bit." It was an obvious reference to Ackermann.
Germany's Clash of the Titans
Germany is currently witnessing a power struggle between its most powerful individuals. Whether it's in speeches, in behind-the-scenes meetings or through intermediaries in the worlds of politics and lobbying, Germany's top politician is at war with its top executive and banker.
The feud, which is being waged both in both Germany and abroad, centers on concrete issues, such as government bailout funds, the credit crunch and executive bonuses. But the real issue is much bigger: Who controls what happens in the world, politicians or business executives?
It is gradually becoming clear that the financial industry, which is ever-eager the rake in enormous profits, once again has its eye on making risky deals -- and, thereby, has at least some control over the financial health of the world. Likewise, there are already plenty of people who predict that the next crisis is right around the corner. To avert disaster, Merkel wants to impose tighter controls on banks, but Ackermann wants to make sure that doesn't happen.
It's the great duel of the day.
One of the bones of contention is the credit crunch. Banks are now very reluctant to lend money to anyone but those with the highest credit ratings. This stance has really hurt businesses in the real economy, that is, industrial and commercial companies.
Merkel is trying to forge an alliance against Ackermann and his fellow top-level bank executives. She wants to create a split in the German economy that will see real-economy businesses pitted against banks. As she said two weeks ago at the annual convention of the Confederation of German Employers' Associations (BDA), this is the "order of battle." Indeed, Merkel is surprised that industry leaders are not more pugnacious. She wants to see real fighters.
For his part, Ackermann thinks the government should pay more attention to its budget problems than to trying to tell him how to run his business. He has a low opinion of politicians and thinks it takes them far too long to comprehend the intricacies of the finance world. In fact, he doesn't know anyone who truly understands the industry -- down to the last detail -- other than Peer Steinbrück, the former finance minister. He'll grant that the chancellor is very "interested in social cohesion," but he won't say whether this is something he approves or disapproves of.
He also finds it strange that politicians are criticizing private-sector banks, especially when you consider the sorry state of the Landesbanken, the publicly owned state banks. He has a very unique way of making such criticisms with a pleasant smile on his face.
If you look back to the fall of 2008, though, you can see that Ackermann was in the unenviable position of having to ask Steinbrück and Merkel to use government funds to rescue Hypo Real Estate, the Munich-based commercial property lender. If they had not agreed to step in and help, Deutsche Bank would have been dragged down with it.
In other words, Ackermann partly owes his bank's survival to politicians. You would think that this would make him at least a little more humble when he deals with politicians. But that's far from the case. In fact, Ackerman has no use for the word humility, and he doesn't see why he should head to Berlin on his knees.
Taking the Hit
Merkel knows all too well that Ackermann is fond of maligning politicians for having only a layman's knowledge of the finer intricacies of the financial sector. She also knows that few would ever accuse her of not being clever. And that's why she loves it when someone tries to paint her as being dim-witted.
As it is, Merkel does not believe that being chancellor means that she should be expected to know all the details about all the outlandish financial products. For Merkel, what's far more important is the big picture and big picture issues. In fact, she doesn't disagree with Ackermann when he says that her interest is in social cohesion -- she just doesn't perceive it as a slight.
Likewise, she doesn't get the impression that bankers like Ackermann give a hoot about social issues. If he had, she reasons, Ackermann probably wouldn't have hit upon the idea of proposing another government-backed bailout fund. In the end, it would be Merkel's job, not Ackermann's, to explain to Germans that their taxes were once again going to be spent to guarantee bank transactions. Ackermann would be quietly enjoying his new sense of security, while Merkel would be taking the heat.
As Merkel see its, this isn't how a democracy should work. She might not put it in such bald terms, but she feels like she's being screwed over.
A Study in Contrasts
The current duel between Merkel and Ackermann is a contest between two oversized egos, each at the height of self-confidence.
Ackermann, 61, a Swiss national, has done a fine job of guiding Deutsche Bank through the crisis. As financial empires have collapsed around him, his bank has already been raking in handsome profits.
Merkel, 55, who spent much of her life in East Germany, has just been re-elected to office. And despite the fact that the first weeks of her second term were a disaster, at least now her Christian Democratic Union (CDU) can govern with its preferred coalition partner, the Free Democratic Party (FDP).
This is what a Berlin dinner in a medium-sized group including Ackermann looks like: He greets his guests in an elegant room at the Deutsche Bank building on Unter den Linden, Berlin's main boulevard. There's lots of art on the walls, the food is first-class and the red wine is from France. It is a five-hour affair, and cigars are passed around after dessert.
And this is what a Berlin dinner in a medium-sized group including Merkel looks like: She greets her guests at the Chancellery in an austere room that looks like an Ikea showroom. The books on the shelves are unread, the food is simple and the red wine is from Italy. Merkel's dinner is a three-hour affair, and smoking is not permitted.
You almost never see Ackermann without a smile on his face, and he comes across as the epitome of likeability. He is patient, he eases himself into conversations and he remains consistently polite, even in the face of attack. Still, his judgments are brutal. Casually, yet elegantly, he can define half of humanity as fools. And sometimes its three quarters.
Merkel's conversational style is more direct and concise. While Ackermann promotes himself and his arguments, she makes her positions unmistakably clear. She likes to pepper her words with sarcasm. Sometimes this is funny; sometimes it's biting.
Friends No More
For a long time, the two were on good terms. Ackermann is undeniably charming, and Merkel is not averse to old-school male charm. In the first few months of the crisis, he served as one of her valued advisers, and they spoke frequently.
But on Sept. 29, 2008, the two had a fateful telephone conversation. It was 12:45 a.m., on the night that Hypo Real Estate had to be rescued. The negotiations were stuck in gridlock, and the banks insisted that they were only willing to cover up to €7 billion ($10.5 billion) in HRE's bad debts.
Merkel phoned Ackermann on her mobile phone and demanded 10 billion.
Too much, Ackermann said.
Nine billion, Merkel replied.
It was a high-stakes game of poker played out on the brink of an abyss. If the two couldn't reach an agreement within a few hours, the global financial system could collapse. They settled on €8.5 billion.
When contemplating their current relationship, it's important to remember that there was a time when they made a good team. But Ackermann destroyed it.
At a closed-door meeting of Deutsche Bank executives held in October 2008, Ackermann reportedly said that he would be ashamed to have it accept government money. Merkel heard about this and was incensed. With this man's help -- and using €480 billion in government funds -- she had just erected a shield to protect the banks. And now he was throwing nothing but scorn on the project; he was denigrating their team effort.
Ackermann's career has seen its fair share of annoying acts. It began when he flashed the V-for-victory sign after being acquitted in a case centered on dubious payments made during the takeover of the telecommunications company Mannesmann. He also attracted a lot of negative attention when he announced that he had set a 25 percent profitability target for his bank shortly after the worst phase of the crisis -- as if nothing had happened and the dangerous games were simply about to continue.
And now he is calling for taxpayer money to be used for a new bailout fund -- as if he never said that he would be ashamed to accept government bailout funds.
Ackermann is notorious for putting his foot in his mouth. And that's why he has been the most vehement opponent of Merkel's most important project in this legislative period: cohesion. The new interior minister, Thomas de Maizière, even intends to use the word as the motto of his tenure. The basic idea is that no one should be allowed to deviate too far, either up or down, from the center of society.
For his part, Ackermann comes across as someone who has gone way up --- to the lofty heights just beneath the sun. But he sees things completely differently. Ackermann loves to tell people that, the minute he walk out of his Berlin hotel, he is surrounded by people who want to touch him and shake his hand, and he insists that he never hears an unkind word. In fact, he has invited his critics to accompany him on one of these strolls. But when someone accepted the invitation, his press spokesman was quick to point out that Ackermann had only been being facetious.
Still, to prove his popularity, Ackermann has survey results at his fingertips. According to the figures he cites, 93 percent of Germans know who he is. Likewise, 20 percent like him, which -- he is happy to point out -- is higher than it is for many politicians. He adds that he is treated with great respect outside of Germany, which is something that Merkel hasn't failed to notice. If she goes somewhere, chances are that he's already been there.
It's Merkel's bad luck that she can't even use Ackermann as a bogeyman for her policies, especially after the embarrassment from April 2008. At the time, Merkel hosted a dinner party for Ackermann at the Chancellery. It was a small affair, with only 30 guests. Ackermann claimed that it was a belated birthday party. But a rather peeved Merkel claimed that it had actually just been a dinner that occurred "around the time" of Ackermann's birthday.
As fate would have it, Ackermann spilled the beans about the dinner during an interview being shot as part of a television biography ofn Merkel. It also happened to happen -- in a well-meaning way, no doubt -- during the election campaign. Merkel didn't view this as being a masterpiece of political communication, particularly given the fact that she was conducting a campaign against only one real opponent: bankers and executives. Her credibility was shot.
In the weeks thereafter, Ackermann was so taken aback about the media circus surrounding the dinner that he paid close attention to Merkel's poll numbers. Ultimately -- and to his relief -- he was able to conclude that he hadn't caused any sharp drop in support.
When Ackermann looks at the world, he sees a place where Deutsche Bank does business. Once, when he was asked about ethics, he replied by bringing up the concept of the ethics of taking risks. As he saw it, anything that helped Deutsche Bank stay alive was ethical. As long as the bank is doing well, Ackermann doesn't care if people want to bad-mouth him. Ackermann would never think of playing nice or currying favor if it meant the bank would suffer. A strong Deutsche Bank is good for Germany, he says. And he is convinced that Merkel believes the same thing.
He's right. Merkel does agree. And she respects Ackermann's achievements. But, still, she doesn't think it's everything.
When Merkel looks at the world, she sees a place where close to seven billion people have to figure out some way to get along. Although she enjoys her power, she's much more concerned about the common good. Ackermann believes that Deutsche Bank has to give out huge bonuses if it wants to attract the best people. But Merkel believes they hurt social cohesion by allowing only a handful of people to have astronomical incomes. Moroever, she thinks they also encourage a short-term, profit-oriented way of thinking -- exactly the type of thinking that had a hand in causing the financial crisis.
Merkel's biggest concern is that there could be a second crisis. If that happens, people will be asking what their political leaders did to prevent it. And the response will be: nothing. For her part, though, Merkel would prefer to say that some things have been done, but not enough. The G-20 nations have taken a few steps, including imposing limits on bonuses and requiring banks to keep larger capital reserves on hand. But none of it has been written into law yet.
Indeed, what's good for Ackermann is bad for politicians. That's why he and his ilk are traveling around the world using all their powers of persuasion to keep strict laws from being enacted. One of their advantages is the fact that a system of rules would only really work if it was adopted worldwide. So Ackermann only needs to find a few naysayers. He's most likely to find them among the Americans and the British, whose economics are heavily dependent on their financial sectors.
This is the power struggle that Merkel finds herself embroiled in. Who is making the laws that are most important in the current situation? Ackermann and the other bankers? Or Merkel and her allies, such as French President Nicolas Sarkozy? At issue is "a state above the economy," as German President Horst Köhler recently said, quoting the German economist Alexander Rüstow. And another thing at issue is democracy, which Merkel calls "fundamental."
Josef Ackermann's birthday is on Feb. 7. No dinner is planned at the Chancellery.