Sunday, 5 October 2008

Germany guarantees bank deposits

It is amazing how quickly a large bank failure concentrates the minds of politicians. A few days ago, German Chancellor - Angela Merkel - criticised the Irish and Greek governments for giving a blanket guarantee on deposits.

A few days later, the second largest German commercial property lender bank hits the rocks and can not find any funding. Suddenly desperation takes hold of the German government. After a few hurried weekend meetings with officials, and Merkel is in full reverse. Forget those critical comments from a few days earlier; Germany needs what Ireland and Greece has; a blanket guarantee on private deposits.

Meanwhile, the backside covering and blame-storming got off to a brisk start. The German finance minister - Peer Steinbrueck - says he was "appalled" that the problems in Hypo had not been revealed earlier. Well, if he spend a little more time in the office and less time slagging off the US, he might have noticed something was going wrong. Poor old Steinbrueck - it is a clear case of Hubris followed by a fall.

With Germany, Ireland and Greece, the other EU countries are sure to follow. I reckon that there should be a complete guarantee on all EU deposits by next Friday. This financial crisis is starting to look extremely expensive.


dearieme said...

The old West Germany had earned an enormous amount of respect. Doubts set in for me when it overpaid grotesquely for East Germany, when it decided to move the capital to Berlin, and when it abandoned the DM and the Bundesbank. The recent juvenile sniping at the USA was a reminder of what's been lost - the feeling that the grown-ups were in charge. Mind you, that's been true here since 1997.

John McClane said...
This comment has been removed by the author.
Anonymous said...


of course we all felt so much safer with the grown-ups who were in charge before '97!

dearieme said...

Well, anon, they didn't get us into this mess, did they?

CityUnslicker said...

hmm...funds guaranteed by wednesday I think. Maybe an emergency rate cut too. After all a nice bout of inflation is just what the mad doctor ordered.

Make sure your cash is well invested alice; I forsee a steely determination to knife savers at the expense of debtors.

Anonymous said...

As I posted some weeks ago.

Who benefits from inflation? Debtors. Who holds the debt (apart from mortgage and card holders)? Banks and government. Who will save the savers?

A David

mike said...

There was no substance or clarification behind the German guarantee. It was also very hypocritical of Merkel who had previously criticised Ireland’s guarantee.

Also in this world of finance, business people will see through guarantees they know can not be met. This in turn will in a way discredit those nations currencies. How can you put a guarantee in place without showing how you will ever be able to meet it?

t.bull said...


"Doubts set in for me when it overpaid grotesquely for East Germany"

What does that mean?

aSteve said...

Helpful commentary on Sky... they're talking about confusion about exactly what Germany is guaranteeing - and likening it to wild non-specific claims made by Darling at the time of Northern Rock.

They also make the point that a guarantee of only, say, M1 and M2 might lead to a very undesirable outcome... i.e. that private individuals decide not to invest. This would lead to a downwards spiral of stock prices - and a downwards spiral in pension fund values - and, a subsequent abandoning of pensions - leaving them too insolvent.

I'm expecting Germany to step back from the happy-juice and realise that any grand intervention would likely harm more than help.

Anonymous said...

I don't think the Huns are being hypocritical. Guaranteeing deposits is like picking which side of the road to drive on. If one person (Ireland) drives on the wrong side it's a danger to everyone. If a bunch of people (the PIGS) all do it then there comes a point when everyone else has to.


Anonymous said...

An interesting article from 1995:

Mark Wadsworth said...

T.Bull. Dearieme is spot on, W Germany did 'overpay' for E Germany, for example is swapped Ostmark (worth around DM 0.10 before 1989) at the rate of 1-for-1.

E German savers were laughing, of course, but E German businesses saw the value of their debts increase tenfold. This led to very high interest rates to counter inflation, which is what kicked us out of ERM (thankfully).

And they paid collossal sums in subsidies which all flowed straight back to the West - I worked in tax in W Germany at the time and all our clients earned themselves silly by doing stuff in E Germany.

Here endeth.

Anonymous said...

Dear Dearieme:

The grown-ups before '97 in the UK... you must mean the irresponsible destruction of British manufacturing through the excessive squeeze in '81; sending signals which encouraged the Argentinians to invade the Falklands in '82 (at least Carrington resigned, admitting he had not behaved in a sufficiently grown up manner); a costly, bloody and unnecessary war; the Lawson credit bubble, the bust '89-'95, the ERM fiasco; diminishing social mobility from '79 to '97, which continues today...

B. in C.

Anonymous said...

P.S. Oh, and all those grown-ups who were caught with their hands in the sleaze till '95-'97... B. in C.

Anonymous said...

Despite everything you list, when they handed over the economy in 1997 it was growing well and the gubbermint had a balanced budget.


Anonymous said...


That's like saying a sculptor does well if he starts with a massive block and ends up with a perfect miniature, wasting most of the valuable material in mistakes.

B. in C.

Anonymous said...

Thatcher's 81 recession was caused by Labour's scorched earth policy up to 1979 following crazy leftie borrow and spend excesses. Much of the manufacturing loss in the mid-80s was the government no longer keeping brain dead industries on life support by stealing taxes from the businesses that were profitable. They made plenty of bad moves but your blame game is the usual socialist trick of wrecking the economy and then blaming the people who came in to pick up the pieces. Presumably you shoot messengers as well.

Even accepting your analogy, Brown and Blair just smashed the perfect minature with a hammer.


Anonymous said...


I was a student in Germany in the mid-eighties, and was able to compare the way the CDU wound down non-viable industries humanely, ensuring that districts were not destroyed socially by encouraging new industries to replace the old and soak up the workforce, which was only progressively made redundant at the local level. Thatcherism was by comparison malicious, wantonly destructive. It caused social problems which are still with us. That is not a socialist observation; Helmut Kohl or anybody else in the CDU would have lamented the difference.

B. in C.