Sept 30, 2016 3:07 a.m. ET
DARRELL DELAMAIDE
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| German Chancellor Angela Merkel is not the great leader Europe needs. |
It would be a sadly fitting capstone to Angela Merkel’s checkered tenure as chancellor of Germany if her mishandling of the Deutsche Bank DBK, +3.87%DB, +1.74% crisis leads to a cascade of bank failures in Europe and completes her destruction of the euro EURUSD, -0.3921% .
Earlier this week, MarketWatch columnist Matthew Lynn incisively analyzed the crisis facing Germany’s largest bank and the crucial need for Berlin not only to be ready to intervene but to let the world know it right now.
The German government is denying that it has any plans or intention of bailing out the bank, which by any measure is a globally systemic financial institution — that is, its failure would inevitably trigger a global banking crisis.
While German banks, and Deutsche in particular, enjoyed a solid reputation for much of the postwar period, it was the collapse of Austrian and German banks in 1931 that led to a worldwide banking crisis, perhaps contributing as much to the onset of the Great Depression as the U.S. stock market crash in 1929.
The new Deutsche Bank crisis is just the latest chicken that has come home to roost for Merkel. Her unilateral decision last year to open Germany’s borders to Syrian refugees has led to political turmoil at home and riven Europe.
As a result, her Christian Democratic party has suffered dramatic losses in two recent regional elections, one in her home province of Mecklenburg-Vorpommern and the latest in the German capital, Berlin.
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Opinion Journal: Raiding Deutsche Bank
Europe Editorial Page Editor Joseph Sternberg on the regulatory assault on one of Europe’s biggest banks. Photo credit: Bloomberg.
In accepting responsibility for these electoral defeats, Merkel said she regretted not paying attention earlier to the growing crisis in the Middle East and its potential impact on Europe.
And the reason she was not paying attention, of course, was because she was fixated on her blinkered policy of pommeling Greece into the ground for running afoul of the strict conditions Germany has placed on euro membership.
In that long-running crisis, Merkel rejected any compromise or sense of European solidarity as she drove Greece into a devastating recession. This uncompromising stance also prolonged the recession and drove up unemployment in other Southern European countries.
Let’s not even dwell on the European Union’s bungled efforts to recruit Ukraine for EU membership in such a heavy-handed way it forced a revolution in Kiev and provided an opening for Russian President Vladimir Putin to annex Crimea and to infiltrate border areas.
During all this time, Merkel was lionized in the press — in Germany, in Europe, and even in the U.S. — as Europe’s de facto political leader and a rock of stability for the continent, even as she repeatedly demonstrated that she had no strategic vision and pursued strictly tactical goals to ensure that her party remained in power in Germany and that she remained chancellor.
This is, after all, the politician who stabbed her political mentor, longtime Chancellor Helmut Kohl in the back; ruthlessly elbowed aside Kohl’s crown prince, Wolfgang Schäuble; destroyed her erstwhile coalition partner, the Free Democrats; and yet has been revered by German voters as “Mutti” — which translates as “Mommy” but might more accurately be rendered as “Mommy Dearest.”
Which brings us back to Deutsche Bank. Well into the 1980s, Deutsche was one of the few triple-A-rated banks in the world. For better or worse, it had been a power in Germany’s convulsive history since its founding in 1870, and in the postwar years pursued a conservative strategy that kept it strong.
The problems began when Alfred Herrhausen, a brash and self-confident utility executive, came to the helm of Deutsche in 1985, and made a conscious decision to break with this tradition of conservatism. He was tragically assassinated by German terrorists in 1989.
His successor, Hilmar Kopper, sought to emulate Herrhausen’s ambition, but unfortunately lacked his vision and talent. He followed through on Herrhausen’s ill-fated decision to acquire British merchant bank Morgan Grenfell and to launch Deutsche into the global competition with Anglo-Saxon investment banks that has led to the German bank’s decline and fall.
The curious inferiority complex that runs through German history then became evident in the bank’s decision to put foreigners in charge, either as chief executive or co-chief executive. Some of them never even learned German.
There was the Swiss Josef Ackermann, the Anglo-Indian Anshu Jain, and currently the British banker John Cryan who became the stewards of one of Germany’s proudest institutions — and successively ran it into the ground in the reckless pursuit of markets they never understood and abandonment of any shred of ethical behavior.
It’s hard to know how much of this history Merkel is aware of, if any. For the daughter of a Lutheran pastor who grew up in East Germany and trained as a chemist, it would be hard to fully catch up with the intricacies of Germany’s sophisticated market economy.
Ironically, the trigger for the current collapse of Deutsche’s stock price is the $14 billion fine proposed by the U.S. Department of Justice for the German bank’s infractions in selling mortgage securities — just another example of the “me-too” mentality driving Deutsche’s managers and reducing it to its sorry state today.
It is truly inconceivable that even Merkel would actually allow Deutsche Bank to fail, but her modus operandi of waiting too long to acknowledge crises and then kicking the can down the road may already have done irreversible damage.
http://www.marketwatch.com/story/angela-merkel-has-bungled-the-deutsche-bank-crisis-like-everything-else-2016-09-30