In response to the “destabilization of the world.”
About 20 German industry chieftains, rattled by the hits German companies have recently taken, including Deutsche Bank and Volkswagen, spent Saturday and Sunday two weeks ago on the phone with each other. They were fretting about the future of Germany’s export-dependent industry and outlining solutions. Some of the participants have since talked to the German daily, Die Welt, which published its report on Sunday.
Participants included Siemens CEO Joe Kaeser, BASF CEO Kurt Bock, Deutsche Bank CEO John Cryan, BDI (Association of German Industry) president Ulrich Grillo, and BDI General Manager Markus Kerber.
How to protect key industries in Germany is also topic of a paper being worked on by the Economy Minister Sigmar Gabriel and his folks, the Welt reported. They’re searching for “protective walls,” and are working on a “list of options for actions to protect key German industries.” Finance Minister Wolfgang Schäuble and State Secretary at the Finance Ministry Thomas Steffen are in on it.
For months, top executives and politicians have been discussing the impact of foreign governments on the “pillars of the German economy.” The recent “re-nationalization” of economic policies in many countries, in parallel with the “destabilization of the world,” scares these managers.
“We are in a new phase in global politics, in which many countries are reverting to their national interests, where globalization is being turned back,” Kerber explained. Other executives have used similar words in their confidential conversations.
Everyone is looking for answers. Nothing has been decided. Solutions are being worked on “behind the scenes.” And it shows, the Welt said, that “protectionism is suddenly no longer a dirty word” in business and politics.
These four events shook up German industry leaders:
- Deutsche Bank’s potential fine of $14 billion that the US Justice Department has proposed to settle allegations concerning mortgaged backed securities sold before the Financial Crisis by its US unit. The largest US banks have already settled, and Deutsche Bank’s fine won’t be the largest one.
- Volkswagen’s nightmarish legal situation in the US, and to a lesser extent in other countries, after having gotten caught in a monster fraud case that has become known as dieselgate.
- The acquisition of German robotics darling Kuka by the Chinese firm Midea.
- The proposed acquisition of lighting specialist Osram by Chinese firm San’an Optoelectronics.
In the first two instances, the tycoons fear foreign governments’ reach into their home base, and suddenly they feel vulnerable, after their enterprises had committed those acts of deception and fraud for years overseas. They want to defend their enterprises and the economy against this.
And in the instances of acquisitions, the tycoons want reciprocity.
“Germany is in a phase where it has to once again act with more self-confidence,” BDI’s Kerber told the Welt. “We’re demanding reciprocity from countries like China. If the Chinese want to buy German high-tech firms like Kuka or Osram, then Germans must be able to completely take over Chinese enterprises too.”
But relations with China are getting increasingly difficult, these executives said.
Major foreign firms cannot start their own subsidiaries in China but have to do it with local partners in joint ventures, often requiring technology transfer. And foreign firms cannot take over Chinese firms; they’re only allowed to buy stakes in them.
One of the proposals is that the government would have the right to forbid the sale of companies once a buyer obtains more than 25% of the voting shares. A government veto would be justified when a large state, such as China, is somehow involved in the transaction.
Germany’s export-oriented economy perhaps depends more than any other on globalization. And so these business leaders are watching with deep concern the national efforts by many other countries.
“The German economy has about one trillion euros in overseas assets in the fire,” Kerber told the Welt. “We have to take care of that.” The solution is in a stronger cooperation between the political powers and business leaders, he said. “The times when politics could do without business, and when business could do without politics are over.”
“We Germans must focus on the interests of our industry,” Kerber said, adding that Deutsche Bank, as biggest bank in Germany, is an example.
In those phone calls on Saturday and Sunday two weeks ago, the business leaders struggled with a delicate topic: Does the German economy still need Deutsche Bank? And if yes, how could they support the teetering bank? Is there even any will to do this?
“Everyone agreed that we have to support the bank in an emergency,” one of the participants told the Welt. So among these executives there was a consensus to help the bank with a declaration of confidence – not surprisingly, we’ve since heard plenty of such “declarations of confidence.”
And if that doesn’t work they’d even help the bank with money, such as an equity stake – which raises an intriguing question: Would they borrow those billions at negative interest rates from Deutsche Bank and use the funds to acquire the new shares Deutsche Bank would sell? The Welt didn’t say. But it would be a nifty idea.
To defend against foreign governments’ attempts on their companies, some CEOs want the “conceptual revival of Deutschland AG” (Germany Inc.).
Deutschland AG was the tightly woven network of banks, insurance companies, and industrial companies in the second half of the 20th century, marked by cross-shareholdings and shared board members. The network was largely disentangled in the 1990s.
Many of the companies won’t confirm these conversations, and some are denying them, according to the Welt. But the idea of greater and tighter industrial and political networks and mutual solidarity against the outside world, particularly US government intrusion and Chinese lopsided aggression find a lot of support.
A “structural change” is taking place in China: capital flight in yuan. Read… What the Heck’s Going on with the New Global Reserve Currency, the Chinese Yuan?
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