Limiting Foreign Funds
July 19, 2007
Amid concerns in her coalition about the growing interest in Germany's domestic firms shown by China and Russia, Merkel said Wednesday the government was mulling a response to corporate takeovers by publicly financed foreign investments funds.
The financial muscle of state-owned funds, particularly in China, Russia and the Gulf states, had reached "hitherto unknown dimensions," Merkel told a news conference as she took stock of her government's performance before parliament recessessed for the summer. Merkel's coalition made up of the Christian Democrats and Social Democrats took office in November 2005.
The chancellor said the government was "looking at mechanisms... both on a European and German level" to deal with the influence of the funds.
"We have started a discussion that is still ongoing," she said.
Politicians in Germany have expressed fears in recent months that newly rich state corporate behemoths in Russia and China could take over key industrial sectors in Europe's biggest economy.
Possible political power
Merkel added that it was possible that such investments could be used not just to attain high returns on capital but also as a lever to gain political influence.
"We musn't be naive," she said. "State-owned funds can also have politico-strategic aims in mind that could be problematic in sensitive areas."
She said she wanted a wide-ranging discussion on the issue, including drawing on the expertise of the business industry, which has long experience in dealing with foreign capital.
Merkel said she had recently spoken with French President Nicolas Sarkozy about the matter.
The chancellor said she also favored discussions among the EU's 27 members for a uniform definition of "strategic industries" which might be covered by such mechanisms.
She stressed she did not want to block such funds, but favored the introduction of transparent control mechanisms like those in force in the United States.
"A general ban is with certainty not the right answer," said Merkel, who warned two weeks ago that major German companies could possibly fall into the hands of hostile states through investments by foreign government-operated funds.
Easy prey for takeovers
German Finance Minister Peer Steinbrück recently commented in similar fashion, saying that Berlin was considering ways of protecting domestic companies in key industries such as telecommunications, banking, postal services, logistics and energy from foreign investors.
The growing power of investment funds has caused concern in Germany because the relatively low market valuation of significant companies makes them relatively easy prey for takeovers.
The funds are estimated to have more than 800 billion euros ($1.1 trillion) at their disposal. This estimation does not include the substantial foreign currency reserves of Middle Eastern and east Asian countries.
China, for instance, has foreign currency reserves of about $1.2 trillion dollars, some of which has been earmarked to buy western companies.
However, last month, Bert Rürup, a top economic adviser to the German government said he opposed introducing new forms of protectionism to stop foreign countries wielding excessive influence over domestic companies.
"I do not think much of sealing off the German capital market," Rürup told the Handelsblatt newspaper.
Cashing in on economic upturn
Merkel said her government would do everything in its power to prolong the economic upturn that Germany is currently enjoying in order to ensure that more people reap its benefits.
"The greater the upswing is, the more influence we will have in shaping the international framework that is necessary to ensure that our traditional market economy continues to prosper," she said.
Germany has been experiencing a steady drop in unemployment and many economists now project German economic growth in 2007 to match or possibly surpass last year's 2.8 percent.