THANKS TO Dublin’s Depfa bank, summer holidays have been cancelled for 11 unlucky German MPs.

While their colleagues have long fled Berlin, the 11 members of the parliamentary finance committee are holed up in a circular, wood-panelled chamber opposite the Reichstag.

They are working their way through 142 bulky files documenting the biggest bank bailout in postwar German history.

For weeks now, government and opposition members of the finance committee have argued over the interpretation of the events of September 28th and 29th last year, when German banks and the government agreed €35 billion in loans and guarantees to prevent the collapse of Munich property lender Hypo Real Estate (HRE).

The government says the bank’s difficulties stemmed from liquidity problems at its Irish subsidiary, Depfa plc, triggered in turn by the collapse days earlier of Lehman Brothers.

Berlin says the fact that the US investment bank was allowed to fail caused unforeseeable and unprecedented problems for banks worldwide, and for Depfa in particular.

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.

Jochen Sanio, head of German financial regulator BaFin, said yesterday that the bailout, agreed in the early hours of September 29th, had prevented a run on German banks and the eventual collapse of the European finance system.

“You would have woken up on Monday morning in the film Apocalypse Now,” he told the committee.

Opposition politicians have another version of events: that months of hair-raising BaFin reports about Depfa’s precarious liquidity situation were ignored by the finance ministry, forcing an 11th-hour taxpayer bailout that has since ballooned to €102 billion.

Testimony so far at the inquiry suggests that the truth of the HRE bailout lies somewhere between these two realities.

Though witnesses agree with the government that the bailout was necessary, most also share the opposition view that HRE/Depfa was an accident waiting to happen.

The most important point to remember about the inquiry is that it is, first and foremost, a summer spectacle for domestic consumption.

Ahead of September’s general election, the HRE/Depfa investigation offers the opposition one last go at the grand coalition government and, in particular, finance minister Peer Steinbrück.

The charge is being lead by Volker Wissing, an MP with the liberal Free Democrats. Despite his energetic attacks on the government, he has yet to land any serious blows.

His cause is not helped by the lack of public interest in the highly complex subject matter.

The public sessions are carefully stagemanaged performances where MPs ask endless rounds of questions from well-rehearsed witnesses that included the new HRE chief executive, Axel Wieandt, and Bundesbank chief Axel Weber.

Wieandt said little of note in a performance that bordered on hostile – not surprising considering the general feeling of ill will in the committee room towards his firm.

The Bundesbank chief agreed with the government view that there was no alternative to the last-minute rescue package and praised the crisis management as “appropriate and good”.

BaFin’s Sanio dismissed opposition claims that his agency failed to act in time.

He said the problem was of HRE’s own making: by buying Depfa, he said HRE had bought into the Dublin lender’s “structurally and latently dangerous business model”, something he called Depfa’s “liquidity trap”.

“The root of all evil was Depfa,” he said, “but my agency had no regulations to examine the acquisition of foreign banks, like the terrible Depfa plc. The Dublin bank did not fall under our remit but that of the Irish authorities.”

Deutsche Bank chief executive Josef Ackermann also gave evidence. Last September he headed a bank consortium forced to stump up €8.5 billion in loans and guarantees for a failed competitor.

He was scathing of HRE/Depfa’s operations: even as they faced ruin, he said they had no idea of how much money they needed to survive.

After HRE asked for €15 billion, the Bundesbank asked Deutsche Bank to send auditors to inspect the company books.

They discovered the real liquidity hole was more than €50 billion.

“A well-run bank wouldn’t have had liquidity problems like this,” said Ackermann.

“I was never really convinced of the model of financing long-term projects on short-term loans. I never found it to be a good business model.”

The head of Germany’s largest bank described in detail the frantic hours in Frankfurt last September, when the banks and government haggled over how to split the bill for the rescue plan.

The deadline for a deal was 1am on September 29th, when Asian stock markets opened.

Without a bailout in place, shares in the cash-strapped HRE would go into free fall.

After haggling over the phone with Steinbrück, Ackermann held a round of phone horse-trading with German chancellor Angela Merkel. The final deal was done just 15 minutes before the deadline.

“The chancellor was certainly very courageous in the negotiations,” said Ackermann. “She squeezed an extra €1.5 billion out of me, not something that’s easy to do.”

The head of Germany’s largest bank called the HRE scare a “Saul to Paul conversion” on the subject of banking regulation.

“There has to be someone looking in from outside indicating possible risks,” he said. “On this point I definitely see serious room for improvement.”

That was a point taken up by opposition Green Party MP Gerhard Schick.

He said the HRE bailout had exposed a weakness of EU cross-border banking regulations, namely a liquidity blindspot that developed between Irish and German regulators over Depfa in Dublin and HRE in Munich.

“In implementing EU regulations on liquidity regulation 1:1,” he said, “Germany now has a gap in its financial market legislation that, in the case of HRE, landed on our toes.”

The inquiry is scheduled to finish this month.