Jürgen Rüttgers, the conservative governor of the German state of North Rhine-Westphalia, has always liked to refer to himself as a "labor leader". He wears good suits and is a loyal member of Chancellor Angela Merkel's Christian Democrats, but he regularly comes out with proposals for helping the poor, too.
Right now thousands of auto workers from Opel, the German subsidiary of ailing US giant General Motors, are pinning their hopes on Rüttgers, and he's been trying to live up to the challenge. Last Wednesday he flew to Detroit, into the lion's den, in a bid to secure their future in talks with GM's management. Some 5,300 of Opel's 29,000 jobs in Germany are located at its plant in Bochum, in Rüttgers' state.
If state loan guarantees aren't enough to rescue Opel, the government will have to take a stake in the carmaker, Rüttgers said, even before he took off.
Ever since GM CEO Rick Wagoner announced plans last week to cut 47,000 jobs worldwide and to close more than a dozen plants, politicians have been proposing ways to rescue the global carmaker hopelessly indebted with €70 billion ($89.3 billion) in liabilities.
It almost seems as though the global economic crisis has reached a new level. The restlessness is mounting, the risks are becoming more tangible. Wagoner left no doubt that he expects aid from the German government. And what will happen if that aid isn't forthcoming? What will happen to GM, to Opel, to the plants in Germany?
Flattery and 'Blackmail'
These were the issues Rüttgers discussed with Wagoner, who was at pains to praise the German Opel plants with their innovativeness and their hard-working employees. His tone was flattering and enticing. He spoke not like a corporate killer but like a shrewd salesman.
GM didn't necessarily have to remain the sole owner of Opel, Wagoner said. He would like to find outside investors, and why shouldn't the government take a stake? Wagoner told Rüttgers about GM's good experiences in Korea and China, whose governments hold up to 50 percent of GM's operations. At the same time he announced plans to axe 26,000 jobs outside the US -- most of them in Europe.
"Never before has the public been confronted with such bare-faced blackmail," conservative daily Frankfurter Allgemeine Zeitung commented the next day.
Rüttgers flew back to Germany both relieved and unsettled: relieved because there won't be massive job cuts for the time being and the Germans are to cooperate on a restructuring plan for GM's European operations. But unsettled because the government may be taking on more than it can handle in this crisis.
Opel Brand Evokes Germany's 'Economic Miracle'
Rüttgers said he had always been opposed to nationalization, and insisted last week that "the state isn't a good businessman." But it looks as if this role may be forced on him.
The crisis has reached the industrial core of Germany by endangering an auto manufacturer that remains deeply German even though it has a US parent company. The Opel brand symbolizes the solidity of the bourgeois 1950s, it evokes a sense of family as well as the economic miracle, which means that in some way it's part of the foundations of the German economy.
These days, some laugh at the brand because it hasn't manage to shake off its somewhat staid image, but virtually every German family has an Opel in its photo album at least.
And that's why there's more at stake with Opel than its 29,000 jobs at four plants in Eisenach, Kaiserlautern, Bochum and Rüsselsheim. This is also an emotional issue. Even Germans who would never drive an Opel can't imagine Germany without it.
But beyond symbolism, the debate about Opel's future is also about the future of the German economy. At what point in this crisis will the economy cease to be a market economy? So much is in flux at the moment that even fundamental principles are suddenly being called into question.
Firms Lining up for Help
Opel is only one case among many. The crisis has engulfed every area of the economy. Barely a day goes by without companies appealing for federal or regional government aid: car components supplier Schaeffler, porcelain manufacturer Rosenthal, chip factory Qimonda.
Germans are almost used to the government shelling out billions to rescue the big banks. After all, if the banks go bust, the entire payments system will break down and the economy will grind to a halt. By contrast, the insolvency of an industrial firm would put thousands of jobs at risk but it wouldn't trigger a systemic crisis.
Nevertheless, politicians in Berlin and the provinces are increasingly portraying themselves as corporate saviors. "These won't remain individual cases," says Patrick Adenauer, head of the Association of Family-Owned Businesses. "This could cause a conflagration."
Never before since World War II has the German federal government had to intervene in the economy to such an extent. The new German Economy Fund totals €100 billion and is aimed at helping the private economy with a mixture of credit guarantees and direct loans. The two economic stimulus programs already approved by the government total €61 billion and are aimed at reviving a broad array of business ranging from road haulage firms to car dealerships.
But is the government capable of steering the economy properly or is it taking on too much responsibility?
It's clear that if the government comes to Opel's rescue, it won't be able to deny help to other companies. And it may overstretch itself. In the past, politicians and civil servants have rarely been good at running businesses. On the contrary, as the fate of the publicly-owned Landesbanken regional banks shows: they all got into trouble with risky speculation deals.
Rüttgers is skeptical about the government taking a stake in Opel. Roland Koch and Kurt Beck, the governors of Hesse and Rhineland-Palatinate which are also home to major Opel plants, have been watching the public debate with a mixture of irritation and helplessness. They weren't happy when Rüttgers mentioned the possibility of a government stake of his own accord before he had even arrived in the US.
Government Stake Seen as Last Resort
They're worried that the resulting public furore will only deter possible car buyers. Who wants to buy a car if the vultures are already circling over the manufacturer? Sources in Wiesbaden, Roland Koch's seat of government, say regional governments together with the federal government and Opel have already discussed the possibility of a public stake in the auto maker, but only as the very last resort.
Chancellor Angela Merkel, who grew up in communist East Germany, is well aware how a state-managed economy can wreck a country. She doubts whether Opel can be split off from the GM empire and whether it will be able to survive on its own.
Experts say Opel is simply too small to go it alone. Now Merkel wants to wait for the carmaker to come up with its own restructuring plan, and to review it carefully before agreeing to any state involvement.
But she's also facing a general election in September, and her rival for the chancellorship, center-left Social Democrat Frank-Walter Steinmeier, is siding with Opel's workers. Steinmeier, foreign minister in Merkel's government, said the government must "review all options" to rescue Opel.
Wagoner's plan envisages closing a number of plants in Germany. He hasn't named any sites yet but there's a rumor that he wants to sell the Eisenach plant and close the plants in Bochum and Antwerp, Belgium.
That would unleash a chain reaction. If European plants are shut down, European governments would be unlikely to grant any loan guarantees. But without such guarantees, Opel would run out of money for investments. The carmaker "would collapse in the next one-and-a-half to two years at the latest," says Klaus Franz, head of Opel's employee council.
Sweden's government said on Monday it wasn't prepared to consider loan guarantees to GM's Saab unit unless the carmaker finds a private investor to underwrite its business plan. Industry Minister Maud Olofsson said the government needed a private investor to steer Saab's turnaround and that the state should not own carmakers.
Opel Spin-Off from GM Would be Tough
Opel is deeply intertwined in GM's global production processes. It develops and assembles cars for group subsidiaries in the US and Korea. But the Germans also get models from the other brands. The Antara sports utility vehicle and the Agila small car are produced by GM subsidiaries Daewoo and Suzuki.
If Opel is to be saved, it will have to be withdrawn from the global production and development network. But is that possible? And should the government support this process with billions of euros in credit guarantees or even a direct stake?
Former Opel CEOs such as Louis Hughes followed a simple concept. They cut back on investment, which led to short-term profit increases. And if that meant the carmaker was short of fresh models after two or three years, that was problem for the next CEO to handle. It was the American way of management. And it's a mentality that is now responsible for the loss of tens of thousands of American jobs each day. The only thing that mattered was the next set of quarterly results, rather than the long-term development of the brand, which has been in decline for the last 15 years.
At the start of the 1990s, Opel's German market share of 17 percent almost matched Volkswagen's. Last year Opel only had just over eight percent and was even behind luxury manufacturers BMW and Mercedes.
As a mass producer, Opel is being squeezed from two sides. It's under pressure from low-cost producers in Japan and Korea, and at the high end is losing market share to small models made by Mercedes, BMW and Audi.
GM boss Wagoner refers to Opel like an old car he wants to get rid of. He was ready to sell it, he said last Tuesday. But so far no buyer had emerged, he added.
Splitting off GM's European business would be difficult but not impossible. The group would have to place its plants and the Rüsselsheim development center into a separate company in which GM could retain a minority stake to ensure that its models could continue getting engines and technology from Europe. And Opel could keep on using models from the GM group, a standard practice among partners in the auto industry.
No Private Sector Takers for Opel
But it remains unclear who could or would want to hold a majority stake in the German company. The global auto industry is in crisis. It has had surplus capacity for years. All the world's assembly plants can produce well over 90 million cars annually, but only 50 million are likely to be bought this year. If there's something car manufacturers really don't need these days, it's new plants. It's not surprising that none of Opel's rivals has so far shown an interest in acquiring a stake in it.
For the time being, a government stake looks like the only option. But the government has deep misgivings about taking such a step. A state-owned carmaker would be extremely hard to manage. It would be virtually impossible to base decisions on matters such as job cuts on economic criteria. Instead, management would be dictated by political considerations.
Economists fear a government bailout of Opel would lead to a whole series of corporate rescues that could undermine Germany's economic foundations. How is the government to decide which company shall survive and which can be allowed to die? Should it decide based on the number of employees? Or on who has the most modern business model? Or would the company that yells the loudest get the government's cash? Or the firm that happens to be based in the constituency of a particularly influential politician?
That's the key problem with state intervention -- if the government helps one company, it automatically puts another at a disadvantage, even if that company had a better management. Companies are in effect punished for being more robust and competitive than ailing firms. In helping troubled companies, the government distorts competition because it unilaterally changes the rules of the game.
Worse yet: If companies can rely on government aid in a crisis, they tend to risk more, because they know they'll be rescued if things go wrong. Economists call that kind of behavior a "moral hazard." Many bankers are irritated because Commerzbank, which has been part-nationalized, is currently wooing customers with especially generous interest rates and aggressive advertising.
Having the Guts to Let Firms Fail
Insolvencies are part of financial crises, says Clemens Fuest, a professor of economics at Oxford University. That may be regrettable for the workers affected, but the government should nevertheless confine itself to cushioning the impact through welfare benefits and labor market policies, he believes. Otherwise "there's a danger the dam could burst," says Fuest.
Nonetheless, it's clear that the government won't simply drop Opel. Federal and regional government experts have been discussing the case for weeks, but they haven't found a solution yet. In fact, the longer they deal with the case, the more difficult it seems.
Until recently, the federal government estimated that it would have to guarantee €1.8 billion worth of loans. But it recently revised up Opel's liquidity requirements to €3.3 billion.
And it's unclear at this stage where the loans secured by the government would come from. No bank is prepared to provide Opel with funds at present, the government believes. It's also unclear how Germany could prevent billions of euros of German taxpayer's money from ending up in Detroit. Experts in Berlin say there's no way to guarantee that doesn't happen. That's why some politicians are pushing for the state to take a direct stake in Opel. Merkel, however, is reluctant to do that because it would open the floodgate to more nationalizations.
Temporary Government Stake
At present, the government is favoring loan guarantees. If that doesn't work, politicians would find it nigh-on impossible to veto a public stake in Opel. In that case, the federal states could obtain a direct stake and the federal government would provide loan guarantees. Hesse governor Koch, however, is insisting that any government stake be temporary.
It's a lose-lose situation for the government. Even if it buys into Opel, the carmaker won't be able to avoid cutting jobs and possibly even closing a plant. The plant in Bochum is regarded as virtually impossible to save. Even a state-owned company can't afford to hold on to massive overcapacity in the longterm. Opel would be doomed to a gradual decline.
But if the government leaves Opel to the mercy of the market forces, the company is at risk of collapsing in the medium term. Tens of thousands of employees at Opel and its components suppliers would lose their jobs.
Letting Opel fail would be a tough course of action that would expose politicians to the anger and disappointment of many workers. But it would make economic sense. Otherwise the government would have no justification for rejecting the next company seeking aid. And they're already lining up.
Reporting by Matthias Bartsch, Dietmar Hawranek, Alexander Jung, Dirk Kubjuweit, Michael Sauga, Gabor Steingart, Janko Tietz