The World from Berlin Commerzbank Bailout Deal to Be 'A Painful Birth'

For the first time in modern history, the German government is bailing out a private consumer bank -- Germany's second largest. Although most commentators see the move to rescue Commerzbank as both prudent and inevitable, many of them don't like the principle or the precedent.

The announcement by Commerzbank on Thursday that it would receive a €10 billion ($13.6 billion) government bailout has sent shivers down the spines of many -- but for different reasons.

Some worry about what it says about Germany's larger economic position when such a large institution is forced to ask the government for help. Others worry that the action could signal an end to the era of limited government intervention in business and banking, which many partially credit for Germany's postwar economic success.

The funds being used to bailout the bank come from the Special Fund for Financial Market Stabilization (Soffin), the German agency set up to make $480 billion available to the country's financial institutions rocked by the global finance crisis. In return, the government will acquire 25 percent of the bank plus one share, which gives it veto power on some major company decisions.

The move marks the first time in the history of postwar Germany that a private bank has been partially (or wholly) nationalized. It was brought about by liquidity problems the bank faced in the wake of its decision to purchase Dresdner Bank from insurance giant Allianz. Without help, the government reasoned, that deal might fall through and throw all three companies into deeper financial turmoil.

On Friday, some critics on the left of the political spectrum criticized the government intervention, saying it didn't go far enough. Friday, on Germany's leading news program "Tagesthemen," Renate Künast, the leader of the Green Party's parliamentary group, and Ulrich Maurer, a leading parliamentary official for the Left Party, said that the state should have used more funds to take an even larger ownership share in the bank.

However, Franz Münterfering of the center-left Social Democrats, the junior partner in Chancellor Angela Merkel's government coalition, defended the state's action as being necessary to bring "stability to the whole situation" and tried to ease worries by saying that the government would "in no way seek to exert influence over business activities."

German commentators expressed general skepticism of the agreement on Friday, but they see the alternative -- a possible Commerzbank insolvency -- as the greater evil.

Right-leaning Die Welt writes:

"For the first time in the history of the Federal Republic, a major private bank has been partially nationalized. There are no longer any doubts: The global economic crisis has Germany in its grip as well."

"Despite its former positions, the government is now in a rush to push through its economic stimulus package in the belief that any delay will lower the chances of successfully boosting demand. …"

"At the same time, there is a growing danger that the cacophony of voices clamoring in favor of the rescue package will lead us to lose a feel for the appropriate measure of things and that proven guard rails of economic policy will be torn down without due consideration. For decades, the widespread renunciation of an active role for the state in economic activities has been one of the pillars of Germany's economic success. In cases of emergency such as this, this rule must be broken in order to secure one of Germany's largest banks. But, by all means, such actions must be restricted to only certain times and be followed by strict self-restraint when it comes to the state exerting influence over business activities."

"Calls for creating a giant (government) umbrella to protect the entire economy like the one used to protect the banks, however, only shows that politicians have completely overestimated their own abilities and failed to learn from their own mistakes. It's not the state's job to rescue individual companies. It is much more responsible for creating the circumstances under which as many businesses as possible can survive."

The center-right Frankfurter Allgemeine Zeitung writes:

"It's only natural that many banks didn't perform well during the fourth quarter of 2008. But even in a general business environment as bad as this, the reports coming from Commerzbank are still unsettling. The situation points to two things: First, Commerzbank will now be using tax money to finance its takeover (of Dresdner Bank) because it no longer has anywhere near the means it needs to pay for it by itself. … With its generous support, the state is showing that it won't let this takeover fall through because the issue really concerns the survival of one of the two biggest banks in Germany."

"Second, Commerzbank acquired Dresdner Bank despite the fact the bank's risk of loss had been grossly underestimated -- even after months of auditing. ... It will take a long time to integrate the two banks, and it's not going to happen without a certain degree of pain. On top of that, Commerzbank has paid too high a price for the state's support. But the good thing is that the customers of both banks won't have to worry about their money. It's the state's protective shield that will let them sleep in peace."

The business daily Handelsblatt writes:

"Billions in state assistance, a supervisory board with two seats reserved for the government, an ownership structure that allows no decisions to be made without Berlin's blessing. There is no doubt that, if the names 'Bundesbank,' 'Landesbank' and 'Berliner Bank' had not already been taken, Commerzbank head Martin Blessing would have been able to make Thursday evening's crowning touch the renaming of his institution into something with a more governmental feel to it. …"

"In any case, a painful birth will be followed by difficult first steps in life. And Commerzbank will be burdened by inherited difficulties. … What remains is the realization that Commerzbank still has a functioning business model. That alone distinguishes it from some other banks in Germany bearing a governmental name."

The center-left Süddeutsche Zeitung writes:

"Six months ago, it would have been inconceivable that one of Germany's largest credit institutions would be partially nationalized. Six months ago, no one would have imagined it possible that the federal government would use many billions to rescue the country's largest bank merger. But that is exactly what happened Thursday. …"

"In doing so, Germans have been forced to see more clearly than ever just how bad things are for the country's banks. One institution is tottering after the other: first BayernLB and Hypo Real Estate, and now HSH Nordbank and Commerzbank. This shakiness has prompted the government to take control over a whole line of institutions. And as things stand, still more German banks might have to be completely or partially nationalized as well. The financial crisis has put pressure on the government, which always shied away from such actions, to break this economic policy taboo, too."

-- Josh Ward, 3:30 p.m. CET
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