Mario Draghi, the ECB’s President, met with a group of furious German parliamentarians last Wednesday on the issue of Deutsche Bank, as Germany’s top industrialists rallied to the bank’s side.
A top German official meanwhile blamed the United States for waging an ‘economic war’ against Deutsche Bank over its alleged sales of mortgage-backed securities before the 2008 financial crisis.
Europe’s banks have seen their value shrink by about $280 billion this year, with Deutsche Bank losing almost half its market value. Germany’s largest lender extended losses after the U.S. Department of Justice last month requested $14 billion to settle a probe into residential mortgage-backed securities, sparking concerns that it will have to raise capital.
While the Frankfurt-based bank would ultimately be rescued by the German government if needed, other banks in the region wouldn’t be able to count on such support.
“Deutsche Bank will be supported by Germany if push comes to shove,” an analyst said. “But what about Credit Suisse, which has shown a similar decline in stock price? Who’s there to bail them out?”
Peter Ramsauer, the chairman of the economics committee of the German parliament, told the media that Washington has a “long tradition” of waging trade wars favorable to the US economy.
The case of the Deutsche Bank is an example of that, Ramsauer said in an interview with Welt am Sonntag. It’s “extortionate damages claims” Ramsauer told the media.
His remarks were echoed by Markus Ferber, a member of the European Parliament from the CSU.
Dieter Zetsche, Daimler boss, Johannes Teyssen, head of utility Eon, and Peter Terium, head of the German power company RWE, sided with Deutsche too.
In September, Deutsche Bank announced that it plans to challenge the $14-billion claim by the US Department of Justice to settle an investigation into its sale of mortgage-backed securities.
Berlin had sued the ECB earlier for transgressing its mandate in the German Constitutional Court and to The European Court of Justice, but lost both cases. Rumours of a settlement between Deutsche and US regulators of $5.4 billion has not yet been confirmed.
Draghi maintains that interest payments by households in Germany, as a percentage of gross disposable income, fell more sharply than interest earnings, and that these problems were caused not caused by ECB policies.
Germany’s trade surpluses, he said, were a problem for the proper functioning of the monetary union. Draghi said a stronger domestic demand in Germany was also needed to help other euro area countries to recover and grow faster.
A referendum on Italy’s constitutional reforms in early December will be a vote against Germany as much as their government’s failure to lift the economy out of stagnation, growing poverty, unemployment and deteriorating public services.
Germany is becoming an election issue in the EU because it is seen as a humiliating arbiter of economic policies.