The common currency union was supposed to benefit the economy of the entire European Union. Now that the euro is struggling, however, it is bringing growth down with it. Germany‘s economy, once seemingly immune to the crisis, is now facing mounting difficulties. By SPIEGEL Staff
When the board of Commerzbank met last Tuesday, Stefan Otto was supposed to make an appearance. The chairman of Deutsche Schiffsbank, a Commerzbank subsidiary based in Hamburg that is focused on the shipping industry, had been summoned to Frankfurt to present the bank’s financial results. But the presentation was cancelled; Commerzbank had no need for the numbers, having previously decided it no longer wanted anything to do with German shipping.
The executive board of Deutsche Schiffsbank was not notified in advance of the parent company’s reversal. The supervisory board was also taken by surprise. Only three months earlier, Commerzbank CEO Martin Blessing had declared the financing of ships and commercial real estate to be part of the bank’s core business. And although it was expected to shrink, Germany’s second-largest bank intended to create a separate segment for the business.
But the executives had underestimated the risks that the European sovereign debt crisis presents to Commerzbank, and how much capital the ship and commercial real estate business ties up. Now Blessing has slammed on the brakes. Deutsche Schiffsbank Chairman Otto characterized the parent company’s about-face as the “decision of a cautious businessman and not of a skydiver.”
Commerzbank has recently made a huge effort to satisfy and even exceed the capital requirements set by the European Banking Authority (EBA). But if the euro crisis worsens, new gaps could soon open up, say banking industry insiders.
In Spain alone, Commerzbank is exposed to the tune of €14.2 billion ($17.9 billion) via investments in banks, companies and the government. The lower the rating agencies assess the creditworthiness of these borrowers, the more capital the bank will have to place in reserve for these investments in the future — to say nothing of potential defaults.
Commerzbank isn’t alone with such problems. The euro crisis and the higher capital requirements being imposed by regulators have adversely affected almost all European banks. And because of growing fears within the banks of a collapse of the euro zone, they are preparing for the worstby withdrawing to their home markets and winding down many investments.
This has serious consequences for the economy, not just along the periphery of the euro zone, but also in Germany, which had proved to be crisis-proof and was in fact booming until recently.
Companies had been banking on the assumption that growth in emerging economies would offset weakness in the euro zone. But now even those markets are no longer as promising. Growth is weakening across the board in the emerging markets, a Citigroup study concludes.
Last week, chipmaker Infineon shocked the industry when it issued a profit warning. Siemens CFO Joe Kaeser told investors that tougher times are ahead, and even economists are slowly abandoning the conviction that Germany could remain an island of the blessed in a sea of crisis-ridden euro-zone countries.
The German economy will stagnate by this fall because of the euro crisis, Hans-Werner Sinn, president of the Munich-based Ifo Institute for Economic Research, said recently. The Macroeconomic Policy Institute (IMK) sees the German economy stagnating both this year and next. “The crisis in the euro zone, the strict austerity policies and the associated recession in many EU countries” have taken hold of the German economy, says the IMK. The economists at Citigroup expect a recession in the euro zone in 2012 and 2013.
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