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Germany

Opinion: Bailouts Fine in Moderation

The government is set to decide whether to grant ailing German carmaker Opel 1 billion euros in credit guarantees. DW's Karl Zawadzky asks whether state support is really the way to go.

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The government in Berlin responded to Opel's cry for help by saying it would study the plea -- unlike Hessen's State Premier Roland Koch, who immediately called for a "protective shield" in the form of comprehensive state support for Germany's entire automotive industry and government help totalling 500 million euros ($632 million) of the state budget.

The government's more measured response is an eminently sensible one, since the German company owned by General Motors is not actually at immediate risk of bankruptcy. And if regional governments start bailing out individual companies facing insolvency -- for whatever reasons -- then who knows where that could lead?

Worst-case scenarios

Executives and union leaders at GM subsidiary Opel turned to Berlin and the regional governments in the states where Opel has factories out of fear that parent company General Motors might go bust and will no longer be able to pay back the loans it owes its German subsidiary.

But this would be a worst-case scenario -- and an unlikely one, given that in the US, Congress is currently working out the details of a $25 billion rescue package for America's big three carmakers General Motors, Ford, and Chrysler.

So there clearly is enough time to weigh the options, instead of acting rashly, and the options do need to be weighed. For example, it makes no sense to use German taxpayers' money given the risk that funding will simply end up in the pockets of the American parent company -- especially since several years ago, General Motors turned Opel from a joint stock company into a limited liability company, not least in order to boost control of its subsidiary.

After Merkel held talks in Berlin with Carl-Peter Forster, CEO of General Motors Europe , Hans Demant, Opel CEO and Klaus Franz, president of the works council, it became clear that Berlin and the regional governments where Opel's factories are based do not intend to abandon the company.

But a bailout will come with strings attached. And no one has any intention of introducing state support for the entire automotive industry. Many companies, after all, including Daimler, BMW, VW and Porsche, are currently doing very nicely indeed. They are certainly not suffering from an acute lack of cash -- although a lack of customers is a growing problem.

Out of touch

Karl Zawadzky

Karl Zawadzky

Partly to blame is a product range that reflects neither the financial crisis nor environmental concerns. With their enormous gas guzzlers, state support would not be enough to pull these companies through a financial crisis. They need more than bailouts, credit guarantees and stimulus packages. The consumers simply don't want these kinds of cars any more -- not even in the US, traditionally home to low gas prices and a somewhat undeveloped environmental awareness.

The carmakers need to wake up and smell the coffee. Developing new models that reflect changing consumer habits requires time and effort -- and possibly even leads to closures and job cuts. A number of suppliers have already bitten the dust, and if its parent company goes bankrupt, then heads will also roll at Opel.

Nonetheless, over-impulsive, sweeping aid packages make no sense. A credit guarantee should be offered on a case-by-case basis, and only after much deliberation. Not only is it a use of taxpayers' money, it is also a move that gives the company at stake an unfair competitive advantage. A state aid package is a more favorable financing solution than those available to other companies. Were even financially stable companies which could actually weather the financial crisis under their own steam to start considering this an option, they would all want credit guarantees. The government needs to avoid companies enjoying what is known as windfall gains -- and it also needs to avoid its support ending up in the wrong place. When it comes to internal funds, after all, multinationals in particular tend to be very "flexible."

Just one cog in the wheel

The automotive industry is important, but its role in the economy is not nearly as important as that of the banks. Even so, the state will do what it can to extend lifelines to carmakers facing the abyss. Too many jobs are at stake. In Germany, Opel employs 25,000 people, its suppliers another 50,000.

For the time being, Opel's future appears safe. But everything depends on General Motors. The government in Berlin by all means needs to address the crisis in the automotive industry -- and especially Opel's case. But other economic sectors are also hard hit by the troubled economy. And while the government might be able to help out the odd company with an occasional loan guarantee, it can't afford to rescue entire sectors.

Karl Zawadzky is DW-RADIO's business editor (jp)

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