At first glance, Germany dodged a bullet after the Lehman Brothers collapse. While most of the continent went into a tailspin, Europe's largest economy bounced back quickly. There was no property bubble to burst and Germany continues to have the lowest youth unemployment rate in Europe.
Five years on, though, it is striking how few Germans realise the mess Lehman exposed in their banking sector – and the eye-watering amounts of public money it has cost to put right.
That Germany, through its banks, was a participant in the crisis and not just an onlooker has been airbrushed from the crisis narrative. The perception that Germany was unaffected by Lehman has done no harm to Berlin’s reputation in Brussels. Quite the contrary: the crisis has seen a rise in German influence, in particular its demand for tough new fiscal rules as the price for support of crisis countries.
At home, Chancellor Merkel never tires of insisting that Greece and others have to do their homework before they can expect further solidarity from Berlin.
But has Berlin done its home work to reform its banks? The report card is mixed. The problematic Landesbank sector has been shrunk to a shadow of its former self. But far-reaching reforms are still a work in progress, with Berlin on a go-slow over far-reaching plans for EU-wide banking regulation.
German officials claim they are concerned about the legality of European Commission measures to wind-up banks and want a time-consuming treaty change. Critics say Berlin is anxious to prevent outside regulators finding any more timebombs on German bank balance sheets.
Some 18 months after EU leaders vowed to break the link between private banks and public finances, the Bundesbank finance chief Andreas Dombret told Reuters this week that Europe’s risk feedback loop was still wide open.
“If we had a Lehman 2.0 tomorrow, which I don’t see,” he said, “we still wouldn’t hold the tools we designed to wind down banks globally effectively in our hands.”
