Tags: Germany | banks | EU | bashing

German Banker Fights EU Bank Bashing

Wednesday, 03 March 2010 09:18 AM

BERLIN, Germany — Most of Wall Street's “fat cats” seem resigned to silently taking their lumps as politicians follow President Barack Obama's lead in lashing big business on behalf of “Main Street."

In Germany, by contrast, one voice has rung out most clearly during the fallout of the financial crisis — and it belongs to a “fat cat” banker with a penchant for the status quo.

Josef Ackermann, the 62-year-old Swiss national who heads Deutsche Bank — Germany's largest financial institution — has been an unabashed defender of the banking sector throughout the crisis.

Those few German politicians who have felt compelled to contradict Ackermann have largely failed to compete with him in capturing the public's attention. In fact, Germany's leading newspapers describe the fate of the national economy as an equally matched struggle between the leader of a private bank and the nation's chancellor, Angela Merkel — the person elected to steward the public interest.

Ackermann doesn't shy from defending the interests of big banks: He has heralded banks' “noble role” in the economy, while warning against imposing new regulations on their activities.

He's dismissed the competency of the national government to intervene in the economy, while insisting that it “stop the bank bashing, the blame game.”

And even though his bank earned some 10 billion euros in 2009, Ackermann hasn't hesitated to suggest that credit might only start flowing to businesses if the government agrees to lend the banking sector more money on generous terms.

In a moment so ripe for populism, how has Ackermann been able to get away with this sort of rhetorical grandstanding? At root, the answer lies with the peculiar history of German banking: Though business practices of Germany's banking sector are of a piece with modern global capitalism, its public image domestically is still mainly rooted in a simpler age.

“Deutsche Bank has always been the representative bank of the German financial system,” said Dorothea Schaefer of the economic think tank DIW. “Though, of course, that reputation has suffered in the last year.”

The gap between reality and myth was exposed most clearly in the earliest days of the financial crisis, when German politicians showed themselves eager to blame “Anglo-American capitalism” for the global turmoil — though it turned out that German banks were equally as exposed to toxic assets as their English-speaking competitors.

The stereotype of the dowdy, provincial German banker did once have a basis in truth. The German banking sector originally grew in the 19th and 20th centuries to accommodate a domestic market economy whose needs were more conservative than those of its neighbors.

The corporatist German welfare state privileged a slate of leading industries whose financial needs were long-term and low-risk, and whose workers' assets were tied up in pension plans: It was a system that discouraged the sorts of start-ups in new sectors that would require high-risk, short-term financing. It also dissuaded banks from making many high-yield bets.

Instead, the German public trusted the bankers, together with leaders of industries and top politicians to keep the national economy on track and to make all the big decisions behind closed doors, if necessary: Since big business closely cooperated with elected officials, the country's interests were assumed to be at the heart of their deliberations.

Indeed, this was the explicit rationale for Germany's Landesbanken, the regional lending banks that were directed in part by political appointees.

Meanwhile, private banks, like Deutsche Bank, voluntarily accepted and embraced the public aspects of their mission. In a line that has since been often repeated, Alfred Herrhausen, one of Deutsche Bank's top executives during the 1980s, said, “It's not a question of whether or not we have power — it's a question of how we use it, whether we use it responsibily.”

Deutsche Bank, of course, did change its banking practices to adjust to the era of global capital. It was under Herrhausen's leadership, in fact, that it expanded its investment banking operations and foreign investments. But it was Ackermann, selected in 2002 to run the bank, who became the symbol of those changes.

Ackerman seemed even then to relish playing the role of domestic provacateur — at the least, he was tone deaf to Germany's traditional understanding of bankers' public responsibilities. Ackerman is notorious for in 2005 stating the goal of ensuring a 25 percent return on capital investments, an ambition he pursued by immediately firing 6,000 domestic employees of the bank.

Still, Ackermann has maintained close ties to policymakers across Europe and in the United States. European prime ministers are said to call him personally to gain his assent before they go public with new banking regulations. Indeed, Angela Merkel's close relationship with Ackermann had long been a selling point, a tacit endorsement of her candidacy by Germany's titans of industry.

And as Ackermann reminds the press, he has proven his banking bonafides by steering his bank successfully through the crisis without the help of a bailout from the German government.

But Merkel has been slow to realize that, in the depths of the financial crisis, she and Ackermann would turn out to be antagonists in policy struggles. Merkel no longer seems under Ackermann's spell, but she has been caught flat-footed several times in the public debate: Her government attached few strings to its bank bailout, and her government hasn't yet seriously discussed proposals for new banking regulations.

Officials in the German cabinet have even admitted that Ackermann understands the current state of the global economy better than anyone on the government payroll.

Merkel's supporters say that her hesitance to embrace populist gestures is in keeping with the consensus-oriented model of German economics — however much the bankers have abandoned that consensus, Merkel's commitment to it remains strong. “And you can't forget that her coalition has set other priorities, like tax cuts,” said Schaefer.

That others are less shy in directly taking on Ackermann was in evidence last December, when Paul Volcker, chairman of Obama's Economic Recovery Advisory Board, was in Berlin to attend a conference at Deutsche Bank's opulent headquarters in the German capital. After listening to Ackermann speak on banking industry's role in the financial crisis, Volcker took the podium. “Mr. Ackerman claims that the banks produced wealth with their innovative financial products,” he told the audience. “That is false.”

© Copyright 2019 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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Wednesday, 03 March 2010 09:18 AM
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