First a bit of ‘breaking news’ for German readers: the main factor which has lead to the massive round of cost cutting and staff reductions in Germany has not been the activity of a small group of hedge funds, the main culprit, let’s get it out of the cupboard, has been the high euro.
Whilst the contents of G7 meetings are never formally disclosed, it has been a more or less open secret that for some time now that the focus of recent meetings has been on how to overcome perceived imbalances in the global economy, and in particular how to force through ‘structural reforms’ in countries like Germany and Japan where such reforms are enormously politically unpopular. So the structural reforms have been pushed via the indirect route: making them virually inevitable due to cost pressures in export dependent economies.
Now for the point of this post: the real news this week on the German ‘great financial debate’ front is the resignation of Deutsche B?rse Chief Executive Werner Seifert and the imminent departure of the board Chairman Rolf Breuer. (The smoke referred to in my title is an allusion to the latest Economist article on the theme: put that in your pipe and smoke it. Seifert is a notorious pipe smoker).
Behind these resignations there lies a certain irony. In the first place Seifert and Breuer recently made it into the international headlines as symbols of an older generation of German managers whose functions were being thwarted by the growing influence of more volatlile capital in the form of hedge funds. This role of ‘guardian of tradition’, however, didn’t stop Rolf Breuer being at the same time chairman of the board over at Deutsch Bank: an entity whose name figures high on the ‘leaked’ hitlist of companies – whose activities are felt to be a long-term threat to German democracy – drawn up by SPD chairman Franz M?ntefering.
But the fact that Breuer figures as both villain and victim in our story is only one the ironies here to be found.
The real ‘baddies’ in the Deutsche B?rse story are normally thought to be the Children’s Investment Fund (TCI), and in particular their managing partner Christopher Hohn. TCI hit the headlines for opposing controversial plans on the part of Deutsche B?rse for a ?1.3bn takeover of the London Stock Exchange, and Mr Breuer has recently hit out at them for leading a shareholders revolt which he says “”rips into the heart of the German economy”.
(The cynicism of Breuer in this regard is incredible. The full quote is: “It is dangerous when hedge funds take over and impose their view on stability oriented shareholders. I fear it can happen to anyone now. It heralds a new world for company boards in Germany and rips into the heart of the German economy.” Remember he is board chairman over at Deutsch Bank).
But this is where the irony gets deeper, since one of the activities which apparently worries M?ntefering is growing international financial intervention in the German economy. But what was it TCI did? Oh yes, stop Deutsch B?rse (which is in the business of managing equity markets) from buying an equivalent organisation in another country: to wit, the London Stock Exchange. Of course their objection wasn’t an ‘in principle’ one, but simply that they considered Seifert, Breuer and company to be paying to much.
Now if your head isn’t already spinning with all this, you might want to take time out to consider just how any of the above could relate to a debate about the role of ‘social’ objectives in a market economy.
And finally we might note that the European parliament yesterday took a decision which might be thought to have some bearing on the whole situation:
“Mergers between companies based in different European Union member states will soon face fewer legal obstacles, after the European parliament on Tuesday backed a new law on cross-border deals.
Agreement on the proposed directive had long been held up by a controversy over workers’ representation on company boards. Germany, which has a long tradition of giving employees a say in the running of a company, wanted to see that principle upheld in cross-border mergers.
Berlin was afraid that its decades-old system of Mitbestimmung (co-determination) would be undermined by the new law. But the 12 EU member states that do not grant workers the same rights were loath to import the system of employee participation through the backdoor. EU member states finally thrashed out a compromise last November, which was confirmed by parliament on Tuesday.”
Source: Financial Times
To go back to where I started, the real ‘villain’ in the German economy story, if villain there be, is the high value of the euro: maybe, when the smoke finally clears this will become a bit more apparent to all concerned.