DEUTSCHE Bank's potential bailout is "toxic" for Angela Merkel and could ultimately trigger huge shockwaves through the eurozone, the former German economics and technology minister has warned.
 |
| Deutsche Bank is 'toxic issue for Angela Merkel' |
Ahead of next year's election, the German Chancellor must react to the woes of Deutsch carefully or risk the wrath of her electorate, according to Karl-Theodor Zu Guttenberg, former German politician and founder of New York-based Spitzberg Partners.
It comes after Mrs Merkel ruled out the possibility of the Italian government rescuing its banks.
Mr Guttenberg told CNBC: "It is a quite toxic combination for Angela Merkel, she has to be careful in the direction to move. If she offers a bailout too early, it could backfire from the German public.
"If she doesn't, she could sacrifice a German symbol, so it's an awkward position for her right now.
"If she offers a bailout after her stance towards Italy, it could even undermine European structures again, so it's highly complex, it's not over this story."
Deutsche's share price has plunged to record lows over the past week, as investors fear for the bank's solvency.
And the fall-out has also led to sell-off across European banks, as fear spreads through the sector.
Mr Guttenberg, a former member of Angela Merkel's Christian Democratic Union party (CDU) revealed he also shares a gloomy outlook on Europe's banking system.
He said: "I'm not a big optimist on European banking stocks."
Even though Mrs Merkel's government has denied a rescue plan for Deutsche, Mr Guttenberg said the German leader almost certainly has a contingency plan in place.
He said: "She'd (Merkel) be extremely reckless to not prepare for plan B."
Investors' main concern is a looming fine from US authorities over a mis-selling scandal related to the financial crisis.
The Department of Justice wants Deutsche to pay more than £10billion - almost the entire value of the bank and a charge the lender is unlikely to be able to absorb.
Mr Guttenberg said the bank must negotiate down the fine and come up with a "viable strategy" for the future so that it isn't just "muddling through".
http://www.express.co.uk/finance/city/717125/Toxic-Deutsche-is-huge-problem-for-EU-and-Merkel-warns-ex-minister