GERMAN FINANCE minister Peer Steinbrück has rejected claims that he mismanaged the rescue of Hypo Real Estate bank, saying his last-minute bailout last September prevented a “core meltdown of the world financial system”.
As the last – and highest-profile – witness at Berlin’s parliamentary inquiry into the bank bailout yesterday, the confident finance minister brushed off attempts by opposition parties to pin on him the political blame for the near-collapse.
“We had to act in real time, under incredible time pressure and not always with complete information,” Mr Steinbrück said.
“It wasn’t politics that caused the problem, but it was politics that solved it.”
During the baking summer weather, the HRE inquiry has met in an airless committee room opposite the Reichstag to rake over events of September 28-29th last when German banks and the federal government agreed to split the cost of a €35 billion bailout.
Yesterday was Mr Steinbrück’s turn. He ignored the 32 degree weather outside and gave the inquiry panel a detailed two-hour lecture on the fateful evening’s events he described as “acting without a script”.
Munich’s HRE approached the Bundesbank in September warning of liquidity problems at its Dublin subsidiary, Depfa PLC, triggered in turn by the collapse days earlier of Lehman Brothers.
The Dublin-based bank, part of HRE since 2007, finances long-term loans to governments for capital projects through the short-term money markets.
When the Lehman bankruptcy caused this liquidity to dry up, Depfa – and the HRE group – faced ruin.
“Nobody was prepared for that,” said Mr Steinbrück, dismissing as “simply absurd” opposition claims to the contrary.
Led by the liberal Free Democrats, the German opposition parties accuse the finance ministry of ignoring several warnings from its own banking regulator, BaFin.
They have produced BaFin reports from last spring and summer – at least six months before the bailout – expressing concern about Depfa’s precarious liquidity situation and risky business model.
The government – backed by all witnesses to the inquiry – has said there was no indication that the US investment bank would be allowed to fail, making it impossible to predict the resulting problems for banks worldwide and Depfa in particular.
The taxpayer bailout for HRE has since ballooned to more than €100 billion in loans and guarantees.
Currently Berlin is negotiating a state buyout but says so far that the bailout has only cost the taxpayer about €3 billion.
Mr Steinbrück pinned the blame for the near-collapse of HRE squarely on the “profit-hunting” Anglo-American banking culture and on US authorities for letting Lehman fail.
“Lehman was a test, with horrendous consequences,” he said.
Mr Steinbrück promised yesterday to call for tighter financial market regulation at the next G20 meeting in Pittsburgh in the US.
Yesterday’s testimony was a final chance for the opposition to a final go at the grand coalition government before September’s general election.
Despite hundreds of pages of files and endless hours of cross-examining witnesses the opposition, led by the energetic MP Volker Wissing of the liberal Free Democrats, has failed to land any serious blows.
And, despite the huge sums of money involved, the highly complex HRE bailout has failed to capture public interest here.
