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In Bond Case, German Court Debates Fate of Euro

June 11, 2013 by Leave a Comment

Technically, the Federal Constitutional Court was merely considering whether measures by the central bank to contain the euro crisis infringed on German law. But the oral arguments, on suits brought by numerous citizen groups, inevitably turned into a debate on the future of the euro currency project itself.

The star witnesses at the hearings were two friends and former classmates who symbolize German ambivalence about the common currency.

Jörg Asmussen, a member of the European Central Bank’s executive board, defended the bank’s promise last year to buy bonds in any quantity necessary to eliminate fears of euro zone breakup.

Jens Weidmann, president of the German central bank, the Bundesbank, said the E.C.B. would violate European treaties if it bought bonds — which it has not yet had to do.

As the justices pointed out, the court does not have the power to block actions by the European Central Bank. But it might restrict participation by the German government or the Bundesbank in measures designed to address the crisis. As the euro zone’s paymaster, Germany plays a crucial role in any efforts to prop up the common currency.

Some complainants clearly hoped for a ruling that would effectively force Germany to leave the euro.

Karl Albrecht Schachtschneider, a retired law professor and well-known euro opponent, told the court he hoped that “the euro adventure will be brought to an end for the good of Germany and the good of Europe.”

Others did not go that far, but argued that the E.C.B. had bypassed elected officials when it declared itself ready to buy bonds of euro zone members.

“The price of the so-called euro rescue may not be to injure democracy,” said Dietrich Murswiek. He argued before the court on behalf of Peter Gauweiler, a member of the German Parliament who is one of the individuals and political groups that have filed suits against the central bank’s crisis measures.

On the opposite side, Wolfgang Schäuble, the German finance minister, warned that the cost to Germany would be incalculable if the country left the currency union. And he pointed out that under the European Central Bank, inflation has been lower than it was with the deutsche mark. “The E.C.B. is acting within its mandate,” he told the court.

Mr. Schäuble said the central bank could be put into an impossible position if it were faced with conflicting rulings by courts in different euro zone countries.

The hearing, in a fenced-off court and police complex in a wooded area outside Karlsruhe, a city in southwest Germany near the border with France, drew an eclectic group of Germans on both the left and right who deride the euro as a travesty and long to bring back the deutsche mark. Outside a security checkpoint, several dozen anti-euro protesters chanted and waved signs as witnesses and media arrived in the morning. One sign called for Mr. Asmussen, the central bank’s board member, to be thrown in jail, an indication of the emotion that some Germans attach to the issue.

During his appearance before the court, Mr. Asmussen sought to assuage concerns that German taxpayers could be left with bill if the E.C.B. suffers losses from buying government bonds. Unlike a commercial bank, the European Central Bank can operate at a loss, he said. That would mean it would not need to ask governments for money to cover short-term losses.

Answering accusations that the central bank is remote from the democratic process, Mr. Asmussen said its measures had in fact given elected officials time they needed to deal with the crisis.

“The risk of not acting would have been greater,” he told the high court.

Mr. Weidmann, who studied economics at the University of Bonn with Mr. Asmussen, argued a point of view widely held in Germany: that the E.C.B. is making it too easy for struggling members of the euro zone to continue their wayward ways.

“Interest rates have a central disciplinary function,” Mr. Weidmann said. “Monetary policy can’t solve the problems of the euro zone. Only political leaders can solve the problems.”

Article source: http://www.nytimes.com/2013/06/12/business/economy/german-court-weighs-bond-buying-by-european-central-bank.html?partner=rss&emc=rss

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DealBook: German Authorities Are Said to Investigate Deutsche Bank

April 4, 2013 by Leave a Comment

The headquarters of Deutsche Bank in Frankfurt.Michael Probst/Associated PressThe headquarters of Deutsche Bank in Frankfurt.

PARIS — The German central bank is investigating allegations that Deutsche Bank hid billions of dollars in losses to avoid a potential bailout during the financial crisis, people with direct knowledge of the matter said on Thursday.

The Bundesbank is sending a team to New York next week to look into the allegations, the people said, noting that while the bank was obligated to look into the matter, there was no certainty that the investigation would result in any enforcement measures. The people spoke on condition of anonymity because they were not authorized to speak publicly about the sensitive legal matter.

The investigation stems from allegations that the German lender understated the value of credit derivatives positions beginning in 2007 that were worth as much as $130 billion in so-called notional terms.

The financial positions came under severe stress at the height of the financial crisis, when many complex derivatives could not be traded at all. Had the position been properly reported, according to the allegations, Deutsche Bank would have needed a bailout from the German government. One of the country’s smaller lenders, Commerzbank, received 18.2 billion euros, or $23.3 billion, in taxpayer funds in 2009.

In contrast, Deutsche Bank has avoided the stigma of a bailout during the financial crisis. The German firm is expected to argue that its accounting at the time was in line with industry standards, and that its external auditors signed off on it.

One of Deutsche Bank’s former employees, a quantitative risk analyst named Eric Ben-Artzi, had reported the alleged abuses to the U.S. Securities and Exchange Commission through the regulator’s new whistle-blower program. Mr. Ben-Artzi is also suing the bank, claiming wrongful dismissal, and stands to gain financially if the bank is fined.

News of the Bundesbank’s involvement was reported earlier by The Financial Times. Shares of Deutsche Bank were trading higher in Frankfurt on Thursday.

Ute Bremers, a spokeswoman for the German central bank, said in a statement that the central bank did not comment on individual investigations.

‘‘You may assume that supervisors always investigate allegations that have been raised in order to verify their validity,” she added. “This is the task of banking supervisors.’’

Deutsche Bank declined to comment. Ronald Weichert, a bank spokesman in Frankfurt, referred to a December statement that noted the allegations ‘‘have been the subject of a careful and thorough investigation, and they are wholly unfounded.’’

The people making the allegations, the statement said, had ‘‘no personal knowledge of key facts and information.’’

‘‘We have and will continue to cooperate fully with our regulators on this matter,’’ the Deutsche bank statement said.

Deutsche Bank already faces inquiries and lawsuits related to its conduct before or during the financial crisis. Last month, the bank allocated an additional 600 million euros ($775 million) to cover its legal costs, a move that reduced its pretax profit for 2012 by the same amount.

The additional money was primarily a response to numerous lawsuits stemming from Deutsche Bank’s sales of mortgages and mortgage-related derivatives in the United States.

The bank has also been ensnared by the global investigation into interest rate manipulation. In November, Deutsche Bank said it had set aside money for potential penalties related to rate rigging. In total, Deutsche Bank has set aside 2.4 billion euros ($3.1 billion) to cover legal costs.

Besides raising further questions about ethical standards at Germany’s largest bank, the Bundesbank inquiry could weaken Deutsche Bank’s claim to have weathered the financial crisis better than most peers. While Deutsche Bank did not take a bailout directly from the government, it benefited from measures that the German and U.S. governments as well as central banks have undertaken since 2008 to contain the financial crisis.

Jack Ewing contributed reporting.

Article source: http://dealbook.nytimes.com/2013/04/04/german-authorities-are-said-to-investigate-deutsche-bank/?partner=rss&emc=rss

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Bundesbank President Says France Needs to Control Its Deficit

February 25, 2013 by Leave a Comment

FRANKFURT — The head of the German central bank said Monday that France should not give up trying to bring its government deficit below 3 percent of gross domestic product, adding to the criticism being heaped on President François Hollande of France from abroad.

Jens Weidmann, president of the Bundesbank, cloaked his rebuke in the language of French-German solidarity and was considerably more diplomatic than Maurice M. Taylor Jr., the head of the American tire maker Titan International, who sparked a furor last week when he told the French industry minister that French workers were lazy.

Still, Mr. Weidmann was the latest prominent person to lecture the increasingly defensive French on how they should manage their economy.

Speaking in Paris at the École des Hautes Études Commerciales, a leading business school, Mr. Weidmann noted that unemployment in France was above 10 percent while France’s share of world exports had declined by 25 percent since the euro made its debut. Total government debt “has reached a level that could potentially hurt growth,” Mr. Weidmann said.

France would undermine confidence in its prospects if it delayed efforts to control deficit spending, he said.

“Putting consolidation off would just shift the problem into the future,” Mr. Weidmann said, according to an advanced text of his remarks. “It would buy time but in so doing also worsen matters today as there is the risk that trust in public finances would erode even more.”

The tone of Mr. Weidmann’s speech was polite and even included a joke at Germany’s expense. (“How many Germans do you need to change a light bulb? One: he holds the light bulb, and the rest of Europe revolves around him.”)

Mr. Weidmann invoked the durable, if sometimes contentious, relationship between France and Germany, which has always been crucial to the functioning of the European Union. “Only together can France and Germany solve the current crisis,” he said.

But he said that the largest countries in the European monetary union had a responsibility to set an example for other members. “It is in my view particularly important for the heavyweights in E.M.U. to give clear signals,” he said.

France’s government budget deficit will be 3.7 percent of gross domestic product this year, while Germany will have a slight surplus, the European Commission forecast last week. When European countries formed a common currency, they agreed to keep their deficits below 3 percent of G.D.P., though the target has often been breached.

Mr. Weidmann acknowledged that budget austerity might hurt growth but said countries had no choice. “It is important that governments adhere to the consolidation plans they announced,” he said. “This will inspire confidence, which is an important prerequisite for the economy to grow.”

He rejected suggestions by Christine Lagarde, president of the International Monetary Fund and the former economics minister of France, that Germany should somehow become less competitive to give other countries a chance.

“The deficit countries must act,” Mr. Weidmann said. “They must address their structural weaknesses. They must become more competitive, and they must increase their exports.”

Article source: http://www.nytimes.com/2013/02/26/business/global/bundesbank-president-says-france-needs-to-control-its-deficit.html?partner=rss&emc=rss

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Germany Resists Europe’s Pleas to Spend More

January 8, 2012 by Leave a Comment

Could, but almost certainly will not. Even if German lawmakers had not made a balanced budget a constitutional obligation two years ago, there is a deep consensus among policy makers and economists that austerity and growth are not enemies. They are comrades.

Jens Weidmann, president of the Bundesbank, the German central bank, was channeling generations of hawkish predecessors last week when he called on the government of Chancellor Angela Merkel to speed up efforts to cut new borrowing close to zero.

“We must quickly achieve a structurally balanced budget,” Mr. Weidmann said in an interview with the Tagesspiegel newspaper. Germany should set an example for the rest of the beleaguered euro zone, he said.

The Bundesbank president speaks for a large swath of the German public, and his comments suggest that President Nicolas Sarkozy of France and Prime Minister Mario Monti of Italy should not expect more of a financial commitment when they meet with Mrs. Merkel in Berlin this week. Mr. Sarkozy’s visit is Monday and Mr. Monti’s is Wednesday.

“One of the lessons of the crisis,” Mr. Weidmann said, is that cutting budget deficits “should be postponed as little as possible.”

That view annoys many people outside Germany, who see it as another example of the country’s lecturing the rest of Europe while putting a priority on its domestic interests. Germany, with the lowest borrowing costs and strongest economy among the big European countries, should lend the rest of Europe a hand, they say.

“Germany is the only country that has this freedom, and if they don’t use this freedom, that is bad,” said Éric Chaney, chief economist at AXA Group, a French insurer.

With interest rates on German bonds close to zero, Mr. Chaney noted, should the country not be using this cheap money to invest in education and infrastructure and to promote long-term growth while stimulating demand around Europe?

And Germany should do so for its own good, he added. “If Germany has a problem, it is the instability of the euro,” Mr. Chaney said.

Evidence of a coming downturn in the euro zone remains strong, despite some economic indicators in recent weeks that have been better than expected. Retail sales in the euro area fell nearly 1 percent in November from October, according to data released Friday, while unemployment remained at 10.3 percent. The European Commission’s confidence indicator fell in December for a 10th month in a row.

Despite the worsening circumstances — which most economists schooled in the thinking of John Maynard Keynes see as a compelling reason to loosen monetary reins and increase government borrowing — German fiscal policy is already effectively set in stone. In 2009, the country adopted a constitutional “debt brake” that requires a nearly balanced national budget by 2016.

Berlin can achieve that requirement only if it starts reducing deficit spending now. Mr. Weidmann called for the government to achieve that goal sooner.

There are sightings of Keynesians from time to time at German universities and research institutes, but they are a rare breed. Mr. Weidmann represents the prevailing school of thought, as does Jörg Asmussen, a former high-ranking official in the German Finance Ministry who joined the executive board of the European Central Bank last week.

Both studied at the University of Bonn under Axel A. Weber, a hawk’s hawk who was Mr. Weidmann’s predecessor as president of the Bundesbank.

Mr. Weber, in turn, followed in the footsteps of guardians of fiscal and monetary probity like Otmar Issing, a former official at the Bundesbank and E.C.B. who remains a towering figure in German economics. On Friday, the Frankfurter Allgemeine newspaper devoted a full broadsheet page to an essay by Mr. Issing calling for rigid fiscal discipline to restore confidence in the euro.

Article source: http://feeds.nytimes.com/click.phdo?i=eac87ad55d19f68a5a5f1fd0b96e72f6

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A Star Faces Barriers to Deutsche Bank’s Top Job

June 15, 2011 by Leave a Comment

A banker with a pied-piper quality, Mr. Mitchell persuaded Mr. Jain and 500 others to leave secure jobs at Merrill Lynch in the mid-1990s to help him transform Deutsche Bank from a slumbering financial institution focused mostly on traditional lending to German companies and individuals into a global powerhouse that generated half its profit from trading and deal-making. At the peak of his success, in late 2000, Mr. Mitchell was killed in a plane crash.

In building Deutsche’s investment bank, Mr. Mitchell formed the template for the global universal bank that has since been emulated — for good and ill — by Citigroup, Royal Bank of Scotland, JPMorgan Chase, UBS and Barclays.

At 48 — about the same age as Mr. Mitchell was when he died — Mr. Jain controls all of his former mentor’s empire, and more. In a given quarter, those operations may produce as much as 90 percent of the banking giant’s profit. Now he is confronting the same obstacle that confounded Mr. Mitchell and prompted him to start looking for another job in the days before he died.

As a non-German speaker and Wall Street product, Mr. Jain is facing an uphill battle to succeed Deutsche Bank’s chief executive, Josef Ackermann.

More diplomat than banker, the Swiss-born, German-speaking Mr. Ackermann and the Deutsche board have resisted persistent shareholder demands that the bank put forward a succession plan before Mr. Ackermann’s contract expires in 2013.

All of which has enhanced the view that Mr. Ackermann sees it as his legacy to crown a successor in his own statesmanlike mold — perhaps Axel A. Weber, the recently departed president of the German central bank. There has been much talk of Mr. Weber’s becoming chief executive or coming in to share the job in some way with Mr. Jain.

Ultimately it will be a board decision, and the bank may well decide to anoint Mr. Jain. But the delay, institutional shareholders say, runs the risk of alienating Mr. Jain and might cause him to jump to another investment bank.

“In Germany, no one can imagine an Indian working in London who does not speak German being the C.E.O. of Deutsche Bank,” said Lutz Roehmeyer, a portfolio manager at LBB Invest in Berlin and a large shareholder. “But Deutsche Bank is an investment bank now, and Mr. Jain deserves to run it.”

On a narrow profit and loss calculation, that may be so. But even though Deutsche’s risk-taking was not as outlandish as that of others, the bank was an enthusiastic participant in the United States mortgage boom and it is being sued for $1 billion by the United States government, which contends that its mortgage unit engaged in fraud and deceived regulators to have its loans guaranteed.

While the majority of the alleged fraud took place before Deutsche acquired the mortgage operation, Mr. Ackermann and the Deutsche board may well be wary of choosing a bond and derivatives technician at a time when the practices of all major banks are still being scrutinized.

People who have spoken to Mr. Jain say that he recognizes this is a board decision and that his priority is to keep the profits coming. But, these people say, the delay and the possibility that Mr. Ackermann may not support him for the job have had an effect.

During a brief interview on Tuesday, Mr. Jain took issue with rumors in the market that his relationship with Mr. Ackermann — never close to begin with — had cooled and that he might leave the bank.

“I have been given a huge new opportunity to integrate the investment bank and I am very excited about that,” he said. “As for my relationship with Joe, it is as good as it ever was in almost 15 years of working together.”

Mr. Ackermann declined to comment on the question of his successor, but in the past he has made it clear that the decision to pick the bank’s next leader is the board’s responsibility — with his advice, of course — and that his contract runs until 2013.

By all accounts, Mr. Jain wants to complete the job that Mr. Mitchell and he started 16 years ago. Highly ambitious, with sharp bureaucratic elbows and an even sharper, although impatient, intelligence, he can claim that on his watch Deutsche’s investment banking side did not fall into the trap of so many of its rivals, allowing Deutsche Bank to weather the global financial crisis without assistance, public or private.

Moreover, Deutsche Bank’s United States fixed-income business was, for the first time, ranked No. 1 last year by the closely watched Greenwich Associates investor survey — beating those of institutions like JPMorgan Chase, Morgan Stanley and Bank of America Merrill Lynch in their own backyard.

Article source: http://www.nytimes.com/2011/06/15/business/global/15jain.html?partner=rss&emc=rss

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Sarkozy Supports Italian Official to Lead Central Bank

April 26, 2011 by Leave a Comment

But in the political brinksmanship that tends to decide the fate of appointments at top European institutions, Mr. Sarkozy’s unexpected announcement, at a joint news conference in Rome with Prime Minister Silvio Berlusconi of Italy, may have made it harder for Chancellor Angela Merkel of Germany to endorse Mr. Draghi.

While Germany’s finance ministry, led by Wolfgang Schäuble, has recently warmed to the idea that Mr. Draghi is the best-qualified person for the job, Mrs. Merkel faces a delicate task in preparing German voters for the prospect of a Italian having the responsibility for keeping European inflation under control and managing the fate of the euro.

“France will be very happy to support an Italian for the presidency of the E.C.B.” Mr. Sarkozy said. “I know Draghi well. We support him not because he is an Italian but because he is a man of quality.”

But Mr. Sarkozy’s announcement was made without consultation with Mrs. Merkel,  a German official said, requesting anonymity because the issue was so political.  

The central bank’s role in fighting inflation is a major preoccupation for Germany and Mrs. Merkel retains an effective veto over the appointment, which is scheduled to be decided at a European summit in June.

Mrs. Merkel had been hoping that an inflation-fighting German, or a banker from a North European country, would take the helm from Mr. Trichet, who is retiring in October. But her main candidate, Axel A. Weber, the former president of the German central bank, took himself out of the running earlier this year.  Mr. Weber resigned from the Bundesbank in February.

The exit of Mr. Weber pushed Mr. Draghi’s candidacy to the forefront, despite widespread perceptions, particularly in Germany, that people from Mediterranean countries are not as prudent and responsible with money as those from northern nations.

In the corridors of finance, Mr. Draghi is widely respected as an experienced economic policy maker with sterling credentials and a knack for navigating turbulent political waters.

But Mr. Sarkozy’s move, by appearing to pre-empt Mrs. Merkel, could seriously complicate the process of selecting the next central bank president.

Mr. Sarkozy’s remarks were all the more surprising because both leaders have sought to forge a closer relationship to keep the euro from unraveling amid an unprecedented debt crisis. They have also worked to overcome differences in their approach to the central bank, which Germany wants to keep free from politics, while France, according to German officials, is more interested in influencing it.

Mr. Draghi already has a reputation as a consensus builder — an important skill when running a central bank. Mr. Weber of Germany dropped out of the running in part because he was out of step with other members of the central bank’s policy-making committee.

Serious and direct, Mr. Draghi is also acutely sensitive to Germany’s preoccupation with fighting the specter of inflation, and has spent the last few months underscoring his inflation-fighting credentials.

In a rare interview in February, he emphasized that the bank’s most important task was to ward off any threat of inflation at an early stage.

Monetary policy should “first and foremost be geared toward price stability,” he said during the interview. The central bank recently raised interest rates by a quarter percentage point, a move Mr. Draghi supported. Analysts expect the bank to lift rates perhaps twice more this year.

That policy has come under fire from some experts who warn that higher rates will choke off a faltering recovery in countries like Portugal, Greece and Ireland, where home mortgage default rates are expected to rise in the wake of the central bank’s decision.

But Mr. Draghi’s firm position on inflation has helped endear him to Mr. Schäuble, who sees Mr. Draghi as someone who can guide a strict fiscal and monetary policy while keeping meddling politicians at bay, according to a German finance official, who spoke on condition of anonymity because he is not authorized to speak on the record.

Choosing a central banker from a southern European country would also send a good signal to its troubled neighbors, Mr. Schäuble believes, according to the official. It would show that the politics and economics of the 17-member euro zone is not driven by northern countries alone.

If he gets the job, Mr. Draghi will have to navigate the tricky financial and political imperatives of bailouts for the most stricken European countries, and weigh how much support the bank can and will continue to give to troubled banks in countries like Ireland and Spain.

Mr. Draghi seems to have managed to overcome reservations about his role at Goldman Sachs from 2002 to 2005. The investment bank was the lead manager for a 2001 derivatives transaction that allowed Greece to dress up its books in a way that brought it into the euro club, but Mr. Draghi has made clear that he was not directly involved.

On another monetary policy issue, Mr. Draghi has discreetly voiced concern about the central bank’s continuing intervention in markets for European government bonds. He emphasized that intervention was justified only to make sure that the central bank maintained its influence over interest rates, and not as a form of economic stimulus or stealth financing for overindebted governments.

Mr. Draghi is also the chairman of an influential panel rewriting the rules for global banks. Despite pressure, he appears willing to take on American and European bankers who would prefer to see him ease up on requirements for too-big-to-fail banks to hold extra capital in reserve.

Judy Dempsey reported from Berlin and Liz Alderman from Paris.

Article source: http://www.nytimes.com/2011/04/27/business/global/27draghi.html?partner=rss&emc=rss

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