Today’s New York Times putdown of public banking in Germany was probably not intended to be ideological, but, with the luck of the Rolodex, that’s how it turned out. It is certainly true that several Landesbanken have engaged in stupid and even corrupt practices and have needed to be bailed out. What’s missing, however, is the context.
Contrary to the claim by the EU official quoted in the article, Brussels has been on the warpath against the Landesbanken for years. They have been under intense pressure to demonstrate market rates of return, to show that they are not subsidizing domestic credit in Germany. But they have no competence in speculative finance; their stock in trade is financing the extraordinarily productive Mittelstand—the small, family-owned enterprises that outperform any other SME sector in the world and provide the basis for the country’s export machine. Forced to show instant hyper-profits, these naive public bankers went out and loaded up on mortgage-backed securities, Icelandic delicacies, and other such fare. In other words, they tried to turn themselves overnight into poster children for EU financial neoliberalism and got seriously burned.
No doubt Brussels will use this disaster as an excuse to put still more pressure on Germany to move to a private, profit-driven financial system. The consensus in Germany, however, is to find a way to restore the Landesbanken and return them to their core task of maximizing the profits and productivity of their borrowers. American readers would be better informed by an article that described the EU’s campaign for financial liberalization and the role it played in making Europe even more susceptible to a financial implosion whose epicenter was the US.