Germany Ponders Its Own Auto-Bailout

German Finance Minister Peer Steinbrück is currently in Washington, attending that “G20” summit that is supposed to restructure the international financial system – i.e. to bring about a “Bretton Woods II” – to deal with the current world-wide economic troubles. But after this weekend he’ll not be back at his Berlin office long before he’ll face yet another economic summit, reports the German business newspaper Handelsblatt: Steinbrück calls Opel-Summit.

That’s “Opel” as in “Adam Opel GmbH,” the German-based daughter auto-making concern of General Motors. As you can imagine, it’s currently in financial trouble; this past week it directed its own appeal for help to the German government (actually governments, see below). And so, in more-or-less mirror-image to the issue the US government is now having to confront, Germany is also now taking up the same dilemma: should its auto-makers be bailed out to save the many thousands of jobs dependent on them? Or would that be throwing only the first installment of massive monies to an industry that is anyway doomed with no future?

That debate has already fluctuated between “save the jobs” and “doomed anyway.” I am relying mainly on coverage of the issue from Handelsblatt, which earlier this week (on Tuesday) reported that the German federal authorities were inclined to be skeptical (Opel appeal for help to [German Chancellor Angela] Merkel finds no response). Put more precisely, according to that article those officials were content with pointing to various measures that were already in the pipeline to help the German auto industry and telling Opel that it should be happy enough with them. These mainly include €40 billion in loans that are supposed to come to the German automotive sector from the European Investment Bank to promote innovation, something that is supposed to be approved at a meeting next month, but also an additional €15 credit program as well as a lowering of the sales taxes in connection with the purchase of new vehicles.

But that is apparently not enough, especially not for Opel, which the German weekly magazine Focus is reporting has a financial shortfall of some €2 billion. And it’s clear that the tide has turned and German government officials have now relented and are willing to consider further measures – after all, that’s the Finance Minister himself, Steinbrück, along with Foreign Minister Frank-Walter Steinmeier, who will be holding this “summit” shortly with the top management of the German auto firms together with labor representatives. (Why is the foreign minister involved in this domestic matter? For the simple reason that Steinmeier is at the same time head of his party, the SPD, which makes up one-half of the “grand coalition” now in power in Germany, and he is also the designated Chancellor-candidate for the nationwide elections scheduled there for next year.)

Federal Turn-Around

Why the turn-around? Well, Germany is a federal state just like the USA, i.e. made out of component states with their own governments, budgets, and responsibilities. (It was the Americans who made it one when they helped to rebuild it after WWII; it had not really been a federal state before.) Certain of the states were ready to show much more alarm at the prospect of Opel going bust than the federal government was. These were naturally where Opel mainly has its plants and so is the source of the most employment, tax revenues, and the like, namely Hessen, Nordrhein-Westfalen, Rheinland-Pfalz (all of the preceding are in the old West Germany) and Thüringen. As Handelsblatt again reported (States prepare blitz-rescue for Opel), these states showed themselves ready to react to Opel’s plight last week even as federal officials did not. It was in fact Hesse that took the lead – understandable, since Opel seem to have the greatest presence in that Bundesland (as a German “state” is called), although it is also surprising because in Roland Koch the state has a truly “lame-duck” governor (German: Ministerpräsident – Hesse’s current government travails are a long story I can’t deal with here). Nonetheless, Koch has already pledged half-a-billion euros from his state government’s budget as a contribution to Opel, all while publicly declaring “I assume that there is no one who doesn’t want to help.”

Actually, of course, there were some disinclined to help, namely at the federal level, but it’s clear that this pressure from the Bundesländer has turned the situation around. It was probably of decisive importance that they seem ready to put their own money where their mouths are. This is in sharp contrast to the American situation, and in particular to the analogous pressure on Washington for an auto bailout from the American states. In the lead on this is Michigan Democrat Governor Jennifer Granholm who, although she is prominent these days as a member of Barack Obama’s economic transition team, has no state money of her own to bring to the table since all states – but, one can expect, especially Michigan – are suffering these days fiscally from a recession-induced fall in tax-revenues collected. (Sorry, I’m not familiar enough with the details of German federal financing to know why that does not seem to apply in equal measure to the German Bundesländer.)

The answer in Germany, then, seems clear: yes, a bailout is coming, only the details remain to be worked out starting with the upcoming “summit.” (By the way, while Steinbrück had that set in his calendar for next Tuesday, 18 November, that was before Steinmeier got involved, and he wants it to take place the day before. Remember, Steinmeier outranks Steinbrück, if not in terms of their places in the German federal government, then in terms of their common political party, the SPD.) That does not mean that such a bailout is the “right answer.” But the way things are proceeding at different speeds on the separate sides of the Atlantic, it seems that the Americans will at least have the opportunity to see the initial effects of such a bailout as they consider whether to do the same (assuming progress on that in the US is only possible once Barack Obama comes into office).

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