German banks not taking real risk by aiding Greece, critics say | Business| Economy and finance news from a German perspective | DW | 06.05.2010
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German banks not taking real risk by aiding Greece, critics say

German banks pledged this week to help the Greek economy by keeping credit lines open. But critics accuse the financial sector of engaging in mere public relations, saying it's taxpayers, not banks, who bear the risk.

Headquarters of the National Bank of Greece in Athens

German banks will keep credit lines to Greece open

Undoubtedly, participation in a Greek bailout is an unpopular prospect for the majority of German taxpayers. The meeting that took place this week between Finance Minister Wolfgang Schaeuble and representatives of the country's financial institutions was thus billed as a way of getting German banks to shoulder their share of the burden.

When it was over, Schaeuble appeared with Deutsche Bank CEO Josef Ackermann, who has been leading efforts to rally the private sector, to announce that German banks would keep lines of credit open to Greece, and retain their Greek bonds during the three-year bailout.

Josef Ackermann, chief executive of Deutsche Bank

Ackermann has spearheaded private sector efforts to aid Greece

But German media, as well as many banking experts, have responded with scepticism to the "gentleman's agreement" reached on Tuesday, claiming that financial institutions are not taking any great risk, as the German government is guaranteeing the bonds.

"This is a fig leaf, designed to improve the overall atmosphere," Jens-Oliver Niklasch, an economist at LBBW, told the Financial Times Deutschland. "The banks aren't giving anything away. Either they'll get their money back with interest, or if not, they'll turn to the state."

Defending her government's decision to participate in the EU/IMF loan package to Greece on Wednesday, German Chancellor Angela Merkel welcomed the banks' willingness to assist the debt-ridden country, but warned that they should not expect to profit from their participation.

ECB on a "dangerous path"

Other experts say the banks stopped short of any significant contribution to clearing up the messy Greek economy.

"A substantial contribution would have been if banks agreed to take part in a restructuring of Greek debt," Wolfgang Gerke, a professor of banking at the Bavarian Financial Center, told Reuters. Without this, the pledges by banks amounted to nothing more than "window dressing and politics," he said.

And in an interview with the Passauer Neue Presse, Gerke also criticized the European Central Bank, which he said did everything it could to prevent debt restructuring, only to now accept Greek junk bonds as security.

"We're on a dangerous path," Gerke said.

Politicians from Merkel's ranks are also speaking out against the government's decision to back the aid plan for Greece.

German Chanceller Angela Merkel, right, and Foreign Minister Guido Westerwelle at a special cabinet meeting to provide Greece with billions of euros in aid as part of an EU bailout plan

Chanceller Merkel, right, is facing tough criticism of her government's policy on Greece

Peter Gauweiler, a politician from the Christian Social Union, the Bavarian sister party to Merkel's Christian Democrats, even went so far as to suggest that the best way out of the crisis would be to have Athens "step out of the eurozone for a few years, get its debt under control, and stabilize its currency."

Eventually, Gauweiler said, the country could re-enter the EU "with renewed strength."

Risking trust in politics, media say

In editorials and opinion pieces printed in German newspapers from across the political spectrum, the tone ranged from one of wariness to outright pessimism.

The Financial Times Deutschland branded the banking summit a "flop," saying: "The only thing that Schaeuble could take away from this PR meeting was the institutions' commitment to keep open the existing lines of credit and bonds 'wherever possible' - in other words, nothing."

The center-left Sueddeutsche Zeitung argued that Ackermann and his colleagues are only serving themselves by maintaining credit for Greek banks. "If they were to stop extending credit then the German banks would have to write off a substantial part of their outstanding claims," the paper said.

And the center-right paper Die Welt wrote this week would be a fateful one for Germany, as the aid package that comes up for a parliamentary vote on Friday will fundamentally change the conditions within the eurozone. "No one can seriously promise that the fresh money can prevent a Greek bankruptcy and debt rescheduling… If Athens collapses within a few months, not only will taxpayer's money be lost, but their belief in politics will be definitively damaged," the paper concluded.

Editor: Sam Edmonds

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