Germany Has a Plan to Save Euro but Banks Will be Hurt

Germany Has a Plan to Save Euro but Banks Will be Hurt


The German bank emergency management organization is fairly conventional:

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1)      The Cental Bank (Bundesbank) which takes care of the money supply.

2)      A garbage can for the disposal of flopped banks (Bundesanstalt für Finanzmarktstabilisierung (FMSA)) that takes over the dead banks and “help” their costumers get on.

3)      Then the authorities control of the financial sector (Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin)) that checks the banks follow fit and proper procedures.

It is this last BaFin that is the subject of a new proposal of reorganization. BaFin has been criticized for having been a “Toothless Tiger”:

a)      The banks (and other private financial institutions) are thrown out of loop. At the moment the financial sector has 10 out of 21 seats in this controlling committee. The 10 bankers will be replaced by 6 experts appointed by the Finance Ministry.

The banks have threatened to withdraw: “No taxation without representation”.

Here the bank overlook the rather basic proposition that they might very well be forced to pay anyhow.

b)      On the other hand the Consumer Protection Ministry will be represented and legislation for the protection of the consumers (and their organizations) will be implemented.

c)       The committee members will get a pay rise.

The tasks of this committee will be to keep the Financial Institutions under surveillance and have the ability to make recommendations. This is not entirely empty, as the housing prices are going up in Germany – and there is concern that they will inflate into a bubble know from almost all other countries. Homes in Germany are generally rented, not owned – a remnant of the rebuilding after WW2.


Anybody thinking that the banks will just – as normal – get their way in Germany is very wrong. The economic rebuilder of Germany, Ludwig Erhard, instituted the powerful position of the Finance Ministry – he himself served only briefly as head of government (Bundeskanzler). One of the first things Erhard did while West Germany was still under allied military control was to cut the throat of the banks – confiscating war profits. And yes: Erhard was a conservative – just as the present day Finance Minister Wolfgang Schäuble is.

Pundits considering the European financial crisis – and it is severe with one country (Greece) gone bankrupt plus Spain and Italy in serious trouble – tend to overlook the central role Germany and German institutions have. One thing is for certain: The banks will not be allowed to drag the German economy down.

Especially the British with their huge financial sector (30% of GDP) are in for a hard time. The threat that European banks will lose their place in the world is generally in Germany met with: “And…….???”

The French presidential debate this evening was to a large extent a question of how to follow Germany.