The World from Berlin 'The Government Drug Has Worked'

The German bailout package presented by Chancellor Angela Merkel on Monday was unprecedented in size. And, so far at least, it seems to be working. German commentators, though, are skeptical about its long-term prospects.


German Chancellor Angela Merkel hopes her bailout plan will nip the financial crisis in the bud.
AP

German Chancellor Angela Merkel hopes her bailout plan will nip the financial crisis in the bud.

On Monday, Chancellor Angela Merkel unveiled the German contribution to the world wide bailout of financial institutions: €500 billion ($679 billion) in total, including €400 billion in loan guarantees for the country's ailing banks. Underlining the gravity of the crisis, Merkel signalled that she would request that the German parliament expedite its passage of the plan.

But, cautious optimism was the order of the day. "We're taking rigorous action to ensure that what we have experienced doesn't get repeated," Chancellor Angela Merkel told reporters.

The markets took her at her word: the German blue-chip index, DAX, closed Monday with gains of over 11 percent and on Tuesday saw continued growth.

Merkel's bailout plan also elicited an immediate reply from German commentators, who likewise welcomed the news, if with slightly more hesitation than the stock market.

The center-left Süddeutsche Zeitung writes:

"There's a lot of talk these days about trust. The crisis has already extinguished trust in the financial markets. The question is whether we can still trust the political world. Our politicians are certainly acting like it: Angela Merkel and [German Finance Minister] Peer Steinbrück talk only vaguely about the details of their plan. Their most important argument isn't the program itself, but the supposed lack of alternatives."

"Merkel has already announced both a crisis management plan and a long-term re-design of the financial markets. But she's only faintly responded to her third major assignment: she has to justify the sudden expansion of the state precisely to those who have been most affected by the contraction of the state in recent years. Lack of liquidity is one thing. A deficit of legitimacy would be a lot more difficult to correct."

The business daily Financial Times Deutschland writes:

"The 'government drug' has worked for at least one day. The European governments agreed to a multi-billion euro bailout and the markets reacted with unbridled joy. No one can seriously guess, though, whether this is a sustainable solution."

"But the bailout has certainly broken a psychological dam. The paradigm shift will have long-term consequences for the German taxpayer. Even at Merkel's appearance yesterday, it was clear that the 'government drug' has addictive properties. She just casually mentioned that Europe would have to consider a response to America's 'massive support of its auto industry.' In other words: Merkel no longer rules out having the EU prop up its weakening businesses."

The conservative Frankfurter Allgemeine Zeitung writes:

"The speed and size of the German government's response to the financial crisis have only a few halfway comparable precedents in German history: the crisis management in response to terrorism in the 1970s and the collapse of East Germany little more than a decade later. But no one is talking about overreaction in this case. Everyone knows that we're not only dealing with the security of our banking system. The political order is also under threat."

"The international crisis management has shown positive short-term effects. But the revolution from above is not yet over. The new financial charter that Merkel announced yesterday indicates a future with less risk, but also with less freedom. These collateral damages haven't inspired public criticism -- security has always had pride of place in Germany. But no one has calculated the long-term consequences of our new policies."

The left-leaning Berliner Zeitung writes:

"Let's believe, by all means, that this massive intervention is indeed necessary to save our economic system. But, let's please not think that everything is going to be different afterwards. We might want to better regulate the financial markets and stock market, but that's not going to change their character. It will continue to be oriented towards earning the largest possible profit, motivated by the usual greed."

"These might not be very pleasant ambitions, but they are entirely human ones. In the future, we'll have different new types of speculation, different from those that have just failed. We should be thankful that the system is being bailed out and we can rest assured that when things go wrong again, the state will be there to clean up. It couldn't be otherwise. That's how a capitalist state has to work."

-- Cameron Abadi, 15:00 p.m. C.E.T.

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