A new crunch
July 9, 2009
Shunning party politics, Finance Minister Peer Steinbrueck (SPD) and Economics Minister Karl-Theodor zu Guttenberg (CSU) warned that the country must "take (the credit crunch) seriously" and "prepare for difficult times" ahead.
In an interview published in the Thursday edition of the Frankfurter Rundschau newspaper, Steinbrueck said "we must take seriously, even very seriously, the threat of a credit crunch in the second half of this year."
Steinbrueck stressed that, at the moment, there was not a "general lack of credit", but that certain sectors and companies were finding it harder to get loans.
Guttenberg warned that credit conditions were deteriorating in Europe's largest economy and he told a press briefing in Berlin that "it must to be clear to all: We must prepare for difficult times and we must do it very soon."
Banks get flak for not lending
Guttenberg demanded more transparency from banks and urged lenders to provide more corporate liquidity, especially for larger, long-term investments that ultimately spur growth, jobs and profits.
The chairman of the board of state-owned KfW bank group, Ulrich Schroeder, said there were clear signs of a credit crunch. "The market has completely dried up; we need more long-term financing," he said.
As a possible remedy, Steinbrueck floated the idea that the German central bank, the Bundesbank, could buy up corporate debt, if the situation worsened.
Acknowledging that a final decision on the matter belonged with the central bank, the finance minister said "the Bundesbank and the real economy would thus be in direct contact, which would be a first."
Government intervention in the private sector is already a political hot potato, but buying up corporate debt would almost certainly ignite a firestorm of criticism.
That is probably why in the last few weeks - hoping to avoid that scenario - Steinbrueck and Guttenberg have preferred to apply increased pressure on German commercial banks to begin more liberal lending to business and industry. After all, they argue, the banks have received ample funds from the European Central Bank (ECB) at historically low interest rates.
The two ministers have even accused commercial banks of hoarding billions of euros to make other investments they deemed safer - and more profitable - than lending to corporate clients.
gb/dpa/AFP/Reuters
Editor: Chuck Penfold