Government bailout for Deutsche Bank – a political suicide?

The German government would undermine its credibility if it spent tax payers’ money on trying to save Deutsche Bank, the German financial institution that has been struggling lately. A specialist of the American analysis centre, Eurasia Group, which focuses on assessing political and economic risks, does not see a real chance for any direct government intervention in this matter. He believes, Angela Merkel will rather let the creditors of Deutsche Bank fall, than risk losing her credibility, weakening the European Union.

Péter Zentai: Will it be the fault of Angela Merkel’s attitude if Deutsche Bank goes bankrupt? Does the chancellor refuse any form of government aid from one of Europe’s most significant financial institution?
Mujtaba Rahman: The chancellor cannot do anything else, but what she clearly stated earlier – that German taxpayers’ money cannot be spent on saving a listed bank, even if this particular bank is too big to let it go down.

If Deutsche Bank went bankrupt, it would put the European and the global financial systems in great danger…
Even in the worst case – if the United States insisted on Deutsche Bank paying the 14-billion-fine – the billions of issued secondary bonds would turn into capital. The system that was born after the great financial-economic crisis to regulate European banks, clearly states that the state can only intervene when depositors would suffer losses.

But even in this case, the taxpayers are the ones paying the price again, since German and American pension and other healthcare funds make up a bulk of Deutsche Bank’s shareholders, who essentially are the bank’s creditors through their bonds.
This is indeed a very real problem with a political significance to be reckoned with. However, the Europeans and Americans who keep their savings in these funds are not as concerned about the growing problems of Deutsche Bank, as about the non-existent interest-rates.

How likely do you think that the German government – despite everything they have said – will bail out Deutsche Bank?
This would be equivalent to Angela Merkel’s political suicide. This could ruin the chancellor easier than the refugee crisis. We believe it is highly unlikely that a state intervention on taxpayers’ expense would take place. The chancellor and the Minister of Finances basically assured that never again would they bail banks out the way they did during the 2008-2009 crisis. Merkel confirmed this promise a couple of days ago – with an emphasis on Deutsche Bank in particular. If she loses her credibility, her political carrier will be in ruins – but she is planning to run again next year as CDU-CSU’s candidate for chancellor.
If she made an exception in this question, it would lead to a chain-reaction across Europe: first, the German AfD nationalist-populist party would become more powerful, and this tendency would spread over to Western Europe.
Second, if the German government restored Deutsche Bank on state funds, there would be no turning back: numerous other European governments would feel entitled to copy the German example, ruining the well-known constraint and rigour demanding German politics. The leading role of Germany would come to an end, and the unpredictable consequences of the resulting power vacuum would cast Europe into chaos.

Original date of Hungarian publication: October 3, 2016