German Culture and Politics


Wednesday, May 31, 2006

Bertelsmann finds possible buyers for music publisher (FT)

Bertelsmann is holding first talks with selected potential bidders for its BMG Music Publishing unit, FT Deutschland, the FT’s sister paper has learned.

Europe’s largest media company had announced the intention to sell its music publishing division last week.

Among those interested are Charles Koppelmann, the long-standing music manager, and the former Warner Music chief executive Roger Ames, who is currently advising EMI, the UK music company.

The sale of BMG is part of Bertelsmann’s effort to raise the €4.5bn ($5.7bn) it needs to buy back the stake held by Groupe Bruxelles Lambert. The buy-back, planned for the start of July, will give back full control to the founding Mohn dynasty, which owns 75 per cent of the TV, books and music company.

GBL acquired a 25 per cent stake in the German media group five years ago when it gave Bertelsmann control of TV company RTL. It was looking to make use of its right to float the stake after the end of May, but the Mohn family wanted to stop a listing.

Bertelsmann’s speed in starting talks signals the group’s determination to pay back the necessary loan as early as possible. According to the group, which is expecting to raise more than €1bn through the sale of BMG, the debt resulting from the buy-back should already be “diminished substantially” during the next 12 to 18 months.

Last year, BMG’s net publisher share – turnover minus the licences that are paid to artists and authors – was above €170m, according to industry insiders, while the unit’s earnings before interest and tax were €80m. Unlike the music business, music publishing businesses benefit from steady incomes and profit margins of more than 20 per cent.

There is no shortage of interest in BMG, as the move comes in a period of general turmoil in the music publishing industry. Besides industry figures and rival music groups, such as Universal Music Group, financial investors, such as Europe-based Permira and US-based Elevation Partners, have voiced their interest.

There is speculation another big music publisher could go up for sale in the future, which could be built into a dominant player in the publishing business.

Speculation has been fired by the ongoing merger talks between the two music companies EMI and Warner.

Monday, May 29, 2006

AMD investing $2.5bn in German chip factory (FT)

Advanced Micro Devices said on Monday it was investing $2.5bn in a German chip factory in a move to expand its capacity and grab more market share from its rival Intel.

AMD, the number two maker of PC microprocessors, said it would implement three new projects at its existing Dresden facility over the next three years.

This would give it additional production capabilities to produce circular wafers that are 12 inches or 300mm in diameter. The larger diameter wafer yields more than twice as many processor chips and greater efficiencies than its 200mm predecessor.

Hector Ruiz, chief executive, said: “As global demand continues to rise for AMD products, we are scaling our manufacturing capacity intelligently to meet our customers’ growing needs.

“To achieve this, we are pursuing an aggressive path to invest in and expand our top-rated manufacturing capabilities in Dresden.”

AMD has set itself a target of winning 30 per cent of the market for the dominant “x86” family of microprocessors over the next few years. Traditionally, Intel has held around 80 per cent of this market but its lead has been slipping as it has suffered chipset shortages and AMD’s chips have offered better performance.

Analysts have said that one of the reasons Dell, the biggest PC customer for chips, has not bought from AMD to date is concern over its manufacturing capacity and ability to deliver.
However, Dell announced earlier this month it would use AMD chips for the first time, in a small server segment of the market. AMD may feel its announcement of new capacity could broaden the relationship.

AMD has lagged Intel in converting to 300mm wafers and in moving from 90 nanometres or billionths of a metre to 65 nanometre processes.

The measurement refers to the reducing width of circuitry on chips, allowing more transistors to be fitted on the die.

The Silicon Valley-based company did not say how it would fund the Dresden expansion.

Saturday, May 27, 2006

The dutiful game (FT)

Adolf Hitler went to see what was probably his first football match during the Berlin Olympics of 1936. He had meant to attend the rowing at Gronau, but Albert Forster, the Nazi chief of Danzig, had persuaded him to come and watch Germany thrash little Norway instead. Joseph Goebbels, who watched with Hitler, would write: "The Fuhrer is very excited, I can barely contain myself. A real bath of nerves. The crowd rages. A battle like never before. The game as mass suggestion."

But to Forster's mortification, Germany lost 2-0. "Not fully deserved," Goebbels noted. Hitler never saw a football match again. Only after his era did the German football team become an emblem of the German nation. The current team is a national joke, and yet as the country prepares to host this summer's World Cup, football still helps define the idea of Germany.

Football took off in Germany thanks to the first world war. The troops on the western front played for relaxation and after the armistice they took the game home with them. But the German football team long remained poor. This continued even when Sepp Herberger became Reichstrainer of the national team in 1937, with a swastika on his tracksuit. He would keep the job for 27 years and practically invent German football, yet the 1938 World Cup in France, his first in charge, was a disaster. "Sixty million Germans will play in Paris!" the Nazi newspaper Volkischer Beobachter had trumpeted. After the Germans were swiftly knocked out by Switzerland, Zurich Sport teased: "So 60 million Germans were playing. We only needed 11 footballers."

It summed up the bad luck the Nazis had with football. They never got used to the game's uncertainty. After another defeat to Switzerland on Hitler's birthday in 1941, Goebbels wrote: "Definitely no sporting exchanges when the result is the least bit unpredictable."

Yet during the war the German team continued playing internationals. Albert Sing, who played in Germany's last eight wartime matches between April and November 1942, remembers the pressure. It wasn't so much that the Nazis demanded victory, Sing told me when I visited him in his retirement village in Switzerland, as the fact that the players knew what would happen if they played badly and were dropped from the squad. "You'd go to the front," he laughed. And anyone sent to the Eastern front in 1942 would very probably die.

In the end the players were sent to the front after beating Slovakia 5-2. This was partly to pacify the mothers who had lost their sons and were asking why others were swanning about playing football. "A month after the dissolution of the team two players were dead, Urban and Klingler," recalled Sing. Klingler had scored a hat-trick against Slovakia.

Football disappointed the Nazis, yet it was never that important to them, explains Wolfram Pyta, professor of history at Stuttgart University, in a wonderful essay on German football. The Nazi idea of the German nation revolved around soldiers. They were the national heroes. Footballers were scarcely relevant, Pyta says.

The former US secretary of state, Henry Kissinger, spent his childhood in Nuremberg and, like many German boys in the 1930s became a football nut, though a contemporary remembers him as a terrible player. In a famous essay on football and politics written before the 1986 World Cup, Kissinger explains that German football entered the postwar era without a clear heritage. It had never been particularly good, and the national team never very significant.

That changed one Sunday in July 1954 when West Germany beat Hungary in Bern, Switzerland to win the World Cup. The Germans were captained by a former paratrooper, Fritz Walter, and coached by Herberger, now divested of swastika. The match was like a movie long before The Miracle of Bern became the top-grossing film in Germany in 2003. The Hungarians, unbeaten for years, went 2-0 up after only eight minutes, but the Germans drew level in the next 10, and scored the winner six minutes from time. There were then only about 40,000 television sets in Germany, so tens of millions of people on both sides of the Wall listened to the game on the radio. Many had never heard a football match before. The final whoops of the radio commentator Herbert Zimmermann - "Aus ["over"]! Aus! Aus! Aus! The game is over. Germany is world champion!" - entered the national memory.

An 11-year-old pastor's son named Friedrich Christian Delius listened to the game that day. Later he wrote a novel called The Sunday I Became World Champion. "I still feel a personal, speechless feeling of victory," Delius explained, "and I am not alone. For us children the victory was a liberation, perhaps because our fathers, who had survived the war, could finally permit themselves to appear more relaxed and happy."

Every German of a certain age now has a story of that day. When I asked Bernd Holzenbein whether playing for the German team that won the World Cup in 1974 had been the highlight of his life, he replied: "Just like everyone I saw the final of '54, as a small boy, on the only television set within a radius of perhaps 10 kilometres. Those players were my idols. I devoured Fritz Walter's books. 1954 was a symbol of German resurrection. 1974 was less important."

No doubt the significance of Bern has become stylised in the retelling, particularly in the 1990s when Germans began digging up the happier bits of their recent history, but something momentous did happen that day. The phrase associated with it is, "Wir sind wieder wer" (We are someone again). Finally postwar Germans could be proud of Germany. Yet how could the national team come from almost nowhere to captivate the nation? Pyta says it's because the country had lost all other national symbols. The flag, anthem, militarism and past heroes had been discarded. Germany was the first nation-state without public nationalism - until that Sunday in Bern. Pyta goes so far as to call that match "the founding myth" of the Federal Republic.

The victory became a clunky dance between the new and old Germanys. All over Germany, when the tune of the national anthem was played to celebrate victory, crowds sang the forbidden lines, "Deutschland, Deutschland uber alles". Bavarian radio broke off its live coverage of the team's victory celebrations in a Munich beer cellar after the president of the German Football Federation, Peco Bauwens, began a eulogy to the "Fuhrerprinzip" (the Nazi idea of leadership).

And yet a new kind of German nationalism was born that day. Germans could now unite, in a quieter low-key postwar way, around their football team. Besides the D-Mark it was the one national symbol they were permitted.

Many artists contemplating postwar Germany turned naturally to Bern. Subversive filmmaker Rainer Werner Fassbinder used it in the magnificent finale of The Marriage of Maria Braun. Maria, a dance- hall courtesan turned successful postwar businesswoman, blows herself up in her mansion by lighting a cigarette in the gas oven, while from the wireless set behind her Zimmermann celebrates German victory: "Aus! Aus! Aus! Aus!" To Fassbinder, any German resurrection was suspect.

Gunter Grass, Germany's Nobel Prize- winning novelist, later included the Bern match in his collection My Century. "What would have happened to German football," muses Grass's character, if Hungary's late equaliser had not been disallowed for offside, "and we had again left the field defeated rather than as world champions... "

The answer is that the German football team might never have become such a symbol of Germany. This could have happened: the national teams of Italy, Spain, France and Russia don't have nearly the following that Germany's does. The German team won the World Cup again in 1974 and 1990, yet it never quite escaped the shadow of Herberger. After the war he had decorated his house with pictures of the Christian Democrat chancellor Ludwig Erhard and his favourite Social Democrat politician Herbert Wehner, and continued to coach Germany until 1964. He then handed over to his anointed successor Helmut Schon, who had played for Germany under him in the Nazi years. Schon kept the job until 1978, when he handed over to his anointed successor Jupp Derwall. In other words, there was a long continuity in the era that had begun with Herberger in 1937.

This mattered because the German style of play even today remains the lovechild of Herberger and Nazism. The way a country plays football is often said to reflect enduring national characteristics, but in fact it can be suddenly created. Before Nazism, the Germans seem to have played a soft, slow and skilful football. Then they were subjected to 12 years of rhetoric about war, valour, strength and above all Kampf, a word so central to the Nazi mind that Hitler used it in the title of his autobiography. Kampf literally means "struggle", but even before Nazism the German word was used with far greater frequency than the English one. A battle was a Kampf, any attempt to do anything difficult was a Kampf, and the Nazis often described life itself as a Kampf (often a Kampf for existence). During the war the nation's press was filled each day with the manly sacrifices of the Kampfer at the front.

The word was also obsessively overused in German football during the Nazi years. A match was a Kampf, a battling footballer a Kampfer, and to play in a battling manner was kampferisch. After Germany lost to Sweden in 1941, Herberger noted: "The forwards are too soft! No Kampfer!! Against Sweden one can only win with strength and Kampf, speed and hardness!!"

Men in German football imbibed this sort of talk for 12 years. Here is Fritz Walter writing about a wartime game between his air force team, the Red Hunters, and a Cologne side: "Both goalkeepers are under constant fire... The Hunters' defenders... defuse the dangerous projectiles. Leine's 'bomb' [a hard shot] whizzes narrowly past the post... The men of Cologne carried their hopes of victory to the grave." Many match reports of the Nazi era read like this. Aspiring German players learned that soldierly virtues were valued most. When Walter joined the army he received a letter from Herberger saying "A good footballer is also a good soldier!" The Nazi atmosphere inevitably made the German team's style more aggressive and kampferisch.

Germany's postwar leaders tried to eradicate the cult of the soldier. The army was all but abolished, references to dead Kampfer frowned upon, and the word "Kampf" itself began fading from the collective vocabulary. But long-established cults don't suddenly disappear. Moreover, Herberger was still running the national team, and he perpetuated Kampffussball. He won in Bern with a team of Kampfer who defeated the more skilful Hungarians in the mud (the image of the trenches of the Great War escaped few observers).

The German game remains characterised by Kampf, strength and never giving up. Generations of the country's footballers have been raised in a style of play set under Hitler. The military antecedents of this style are now forgotten, and would be considered an embarrassment if remembered, but they live on in players' nicknames. The great striker Gerd Muller was "der Bomber", any decent playmaker is a "Feldmarschall", and Franz Beckenbauer, greatest German footballer of all, was "der Kaiser" - monarch and soldier in one. This soldierly tradition disappeared from German life but perpetuated itself in football, simply because in football nobody ever felt the need to eradicate it.

But Herberger didn't build a great tradition on Kampf alone. He set a perfectionist tone that survived until the 1990s. A whiff of farce clings to almost every England manager, but in Germany, as the Suddeutsche Zeitung newspaper once noted, manager of the national team has always been "a title that rings with respect, rather like head of Deutsche Bank or president of the Constitutional Court". The German team was an institution with its own initiation rites. In the Nazi years, a novice international would be greeted with a practice known as the "Holy Ghost", which seems to have consisted of the whole team pulling down his trousers and smacking him on the bottom.

The German team stood for a standard of excellence. True, there was booze, poker and illicit sex (in 1980 a Montevideo prostitute was asked at gunpoint to hand back $100, the amount by which she was judged to have overcharged a player) and players were also always squabbling. But that was the consequence of throwing together driven personalities. Everyone - the manager, the press, the players - demanded excellence. The German habit of scoring in the last minute, playing worse but winning, and winning on penalties, were nothing to do with luck but with concentration and drive. Striving to meet the standard of excellence, nobodies won World Cup medals.

The world championships of 1954, 1974 and 1990 were milestones in German nationhood. Each was celebrated on both sides of the German border. A few fans in East Germany even travelled to West Germany's games whenever the team ventured behind the Iron Curtain. One of them was Helmut Klopfleisch. The country's secret police, the Stasi, sparing no expense, would go with them. "K., by his behaviour at the People's Republic of Bulgaria vs. the Federal Republic of Germany, has significantly damaged the international reputation of the GDR," an agent reports sadly in a note in Klopfleisch's thick file. The agent mentions a number of other football dissidents who likewise blotted East Germany's noble reputation. In 1989 Klopfleisch was expelled from East Germany. He told me: "I spent 41 years of my life in the GDR, and now it feels like wasted time, though we lived then, and had fun sometimes. And, you know, it was a real consolation that West Germany were so successful. They always beat eastern teams. That meant a lot to us."

It meant a lot to millions of Germans. Yet most of them expressed their pride quietly. When I asked Lothar Matthaus, who has played the most games for Germany, whether it moved him to represent Germany, he said: "It's an honour to represent a whole country, such a big country where so many people play football. I don't feel any more than that." Germans of Matthaus's age (born in 1961) rarely do nationalism. Pyta describes watching a German team during the national anthem before a match: "Not one moved his lips to sing along." Most were not familiar with the third line of "Das Lied der Deutschen".

These German football teams traumatised their neighbours. The worst memory in French football history is the defeat to Germany in the semi-final of the World Cup of 1982. A recent French documentary about the match featured the now middle-aged French players standing around in their civvies on the fateful field in Seville re-enacting the goals.

The worst Dutch football memory is the lost World Cup final of 1974, recently mourned in a bestselling book. The worst English memories are probably the defeats to Germany in 1970, 1990 and 1996, summed up by the phrase "Thirty years of hurt" in the English football hymn "Football's Coming Home".

For years, fear of the German football team was intertwined with fear of Germany. The country was the largest in Europe, its economy wouldn't stop growing, and who knew when it would next start a war? That fear prompted Margaret Thatcher and Francois Mitterrand to try to block German reunification after 1989. Germany's victory in the 1990 World Cup seemed of a piece with its general dominance.

I came to live in Berlin as a student in September 1990. A week later, on the evening of October 3, I wandered down the Unter den Linden in Berlin to see Germans celebrating reunification. The country was about to become a superpower. Franz Beckenbauer, Germany's victorious manager that summer, had said that with East German players about to become eligible, the national team would be "invincible for years to come". The Unter den Linden was full that night, but apart from a few East Germans downing champagne, most people were wandering around quietly too. Like me, they seemed to be just looking. Walking down the most pompous boulevard of an empire on the night of its greatest glory, you seldom realise that this is the moment that the empire starts to collapse.

Since then Germany has become a country with a stagnant economy, a skeleton army, and a laughable football team. Germany has not won a prize or even a European Championship match since 1996. It has not beaten a front-rank nation since defeating England at Wembley in 2000. Having sufficed with two managers from 1937 to 1978, Germany has been through so many recently that in 2004 Spiegel magazine printed an application form for its readers to send in: "You want to manage the German national team? No problem!" The job went to the former German international Jurgen Klinsmann. He has not only continued losing while living in California, but also intends to get rid of the legendary German white shirts with the black eagle, thus stripping the team of all remaining mystique.

The German decline is mind-boggling for a country of 82 million people with three World Cups in the cupboard and whose football federation claims to be the largest sports body on earth with 6.3 million members. It can only be explained by the loss of Germany's competitive advantage: other countries discovered Kampf.

Herberger made the Germans the fittest and hardest-working footballers on earth. But later their rivals began looking after their bodies: British footballers cut down on the beer, the French began to tackle, and big Italian clubs now have medicine cabinets the size of small hospitals. It then emerged that the west Germans could not compete on technique or grace. "Germans dance like refrigerators," lamented the team's then coach, Berti Vogts, in 1998. By far the most skilful player in the current side, Michael Ballack, is not by chance an east German. Ballack was raised under the old Communist system in Karl-Marx-Stadt (now Chemnitz) where he was forced to do daily repetitive drills using both feet. It paid off.

The other players are so poor that Germany entered the last World Cup as perhaps the first team in history built around a goalkeeper, Oliver Kahn. They have now slipped to 22nd in football's world rankings, though looking on the bright side, as Klinsmann always does, they still remain well ahead of American Samoa in 205th place. And in a generation's time, with Germany's collapsing birthrate, 22nd place will seem quite commendable.

The Germans have learned to laugh at their team. They have mastered the ironic self-flagellation that used to be an English speciality. The German establishment, too, seems to accept the team's collapse. It is not seeking victory in the coming World Cup. German football tried victory, and it only irritated the neighbours. The goal this summer is to charm them. The slogan of the World Cup is "A time to make friends". The event's logo is a laughing face - a "smiley", in internet jargon. The former interior minister Otto Schily admits: "A cheerful Germany, that's not necessarily what people associate with us."

Meanwhile the German advertising man Sebastian Turner is running a campaign to promote Germany worldwide, called "Land of Ideas". He told me: "Country images are extremely stable. They are probably the most stable images you can have." But this World Cup will be the biggest media event in history, and 20,000 foreign journalists will show up in Germany, many of them without match tickets. It's the country's chance to remake its image. Turner explains: "The Thailands of the world don't care much about Germany, and they are probably right. After these weeks they won't think of Germany again."

This summer Germany can rebrand itself as a people of smileys who invented the book, the aspirin, the Porsche, the modern football shoe and so on. But if the Germans really want to remove the last vestiges of fear of Germany, they know what to do: keep losing football matches.

Tuesday, May 23, 2006

Deutsche Börse merger proposal (FT)

Deutsche Börse Releases Economic Details of Euronext Merger Proposal

Shareholders to receive combination of shares in NewCo and cash/ Synergies of 300 million euros p.a. before 60 million euros customer benefits

read the article

Deutsche proposes $11bn merger with Euronext (FT)

Deutsche Börse on Tuesday outlined the details of its merger proposal with Euronext, a cash-and-stock “merger of equals” that values the pan-European exchange operator at €8.62bn ($11bn), topping the bid made a day earlier by the NYSE Group. read the article

Monday, May 22, 2006

Merkel draws promise of action from China on piracy (FT)

China will take fresh measures to fight product piracy, Wen Jiabao, prime minister, said after a meeting with Angela Merkel, the German chancellor, on Monday, conceding that there were still “many problems” in the area.

read the article

Monday, May 15, 2006

Germans rush to float on wave of enthusiasm (FT)

Germany’s smaller and privately owned “old economy” companies are rushing to list on the stock market.

They have been spurred on by enthusiasm from US and German investors for the recent acquisition spree by the country’s industrial heavyweights.

Bauer, the construction company, Klöckner & Co, the steelmaker, and Demag, the crane manufacturer, are among a growing number of companies considering public listings in the coming months, according to people close to these groups.

“Like the big, listed entities, these companies have done their homework in the past few years,” banker. “They have restructured. Investors are keen to give them money to grow, just like they applauded recent takeovers.”

The deals signal the growing for public equity rather than German debt-financing. But the creeping revolution is not principally being led by the companies’ traditional owners.

The driving forces behind most of the pending initial public offerings are private equity houses or investment funds. These professional investors bought stakes in the late 1990s and want to realise a return on their investments.

US private equity house Lindsay Goldberg & Bessemer owns Klöckner, rival KKR controls Demag, while Germany’s DBAG owns part of Bauer.

Many of the companies in Germany’s blue-chip Dax index have marked the end of restructuring by spending billions on strategic acquisitions in the past year and most have been rewarded with steady share price gains.

“A year or two ago, people were defensively focusing on dividend yield to make sure investments made a minimum return,” one banker said. “Now they’re more optimistic, looking to put their money into growth.”

The bankers are so confident that some clients are preparing for market debuts during next month’s football World Cup in Germany. “Even the football fans in the market will be happy to get some diversion,” one lead manager said.

Investors’ appetite for German shares appears strong. The Deutsche Börse has seen 17 offers worth €2.7bn ($3.5bn) since January and bankers now forecast a tripling of deals by the end of the year. This compares with 25 public offers totalling €4.1bn in 2005.

Bankers are confident these listings will be a success even though investors have proved picky. Shares in Air Berlin, the budget airline, fell following their market debut last week. www.ft.com/ipo

Sunday, May 14, 2006

Wolfgang Munchau: Germany’s need for growth (FT)

There was a time, not too long ago, when the US president and the German chancellor agreed that the German economy should act as a “locomotive” to stimulate global demand.

There is no chance that George W. Bush and Angela Merkel could have held such a discussion at their recent summit in Washington. Global economic demand management has been out of fashion for a while. The notion of a locomotive arose out of the 1978 summit of the Bonn Group of Seven leading industrial nations. Helmut Schmidt, the German chancellor at the time, was a reluctant convert to the idea. He worried that it might overburden Germany’s economic capacity.

From the point of view of the world economy at large, Mr Schmidt was probably right, especially considering that only a year later the second oil crisis triggered a global recession. Yet it is debatable whether the policy, which led to boom and bust, was best for Germany itself.

Nowadays, it would be trivial to say that Germany no longer acts as a global economic locomotive. A less trivial point is that Germany barely fulfils such a role even inside the eurozone.

There are two reasons for this. First, Germany’s political class is more inward-looking than the generation of politicians who governed in the 1970s. Second, its current economic establishment is more contemptuous of macroeconomic demand management than that of any other western nation. This extreme position is largely ideological. It may also have been influenced by the “locomotive days” of the late 1970s.

Since Germany accounts for one-third of the eurozone’s gross domestic product, it should come as no surprise that the recent German recovery coincides with that in other parts of the eurozone. Italy, in particular, is heavily dependent on Germany for its export growth. It is therefore no accident that the Italian economy has recently picked up in tandem with Germany.

But the present recovery is hardly solid. Germany continues to underperform the eurozone average. During the first quarter of 2006, German GDP grew by only 0.4 per cent, after zero growth during the fourth quarter of 2005. These data flatly contradict exuberant German confidence indicators and business surveys. There has been a persistent gap between business sentiment, which has been improving, and consumer sentiment, which has remained depressed.

The reason for this gap lies in Germany’s national economic strategy, which consists of two planks, both of which aggravate Germany’s potential role as an economic locomotive: budgetary consolidation and a beggar-thy-neighbour real devaluation inside the eurozone as Germany improves its competitiveness through wage moderation.

One could make a case for budgetary consolidation during a cyclical upswing, but a systemic policy of real devaluation is destructive from the perspective of the eurozone as a whole. According to the European Commission’s spring forecast, Germany’s real unit labour costs will decline by 1.6 per cent this year and by a further 2 per cent next year, having already declined during 2004 and 2005.

As the economy goes through a cyclical upswing, one would have expected the period of wage moderation to come to an end. But the opposite is the case. Real wages not only continue to decline, but do so at an increasing rate. No wonder domestic consumption is so weak. If people expect to earn less money in future, they hold back on consumption today. German consumers act in a far more rational manner than they are usually given credit for.

This trend is reinforced by the present grand coalition’s economic policies. It has a clearly mapped-out strategy of tax increases – witness the commitment to raise value-added tax from 17 to 20 per cent. But it has no strategy for growth and employment – except to rely on this year’s football World Cup in Germany as a potential stimulus. I would put the chances of a further appreciation of the euro against the dollar higher than the probability of Germany winning the World Cup. The exchange rate has a far greater potential for damage than a short-lived football boom could ever compensate for.

The eurozone economy is facing a simultaneous rise in interest rates and the exchange rate. Monetary policy will continue to get tighter for the next two years. Jean-Claude Trichet, president of the European Central Bank, said last week that the eurozone was already growing at its potential rate – around 2 per cent per annum. As far as the ECB is concerned, this is as good as it gets. If it were to get any better, the ECB can be safely relied upon to restore “order”.

Germany has lost its role as a European and global locomotive not out of necessity, but out of choice. If this recovery turns out to be relatively short-lived, perhaps the country’s political establishment will find the courage to formulate an intelligent strategy for sustained growth in the future, just as happened in the late 1970s. Of course, it is perfectly legitimate to question the G7’s policies at that time. Mr Schmidt’s locomotive may not have quite reached the desired destination. But Ms Merkel’s train has not even left the station.

Friday, May 12, 2006

Deutsche Börse woos Euronext with new offer (FT)

Deutsche Börse has put a package of merger proposals to its smaller rival Euronext, aiming to ease shareholder concerns that a merged entity could be dominated by the Frankfurt group. read the article

Wednesday, May 10, 2006

Deutsche Postbank: Getting products to the market faster (FT)

Replacement of core banking systems is regarded as complex, risky and expensive and, understandably, such projects among large banks are extremely rare. But for Deutsche Postbank, one of Germany’s largest retail banks with more than 14.5m domestic customers and total assets of €140bn, the decision to replace its system with SAP’s version in 1999 has proved beneficial.

Postbank was using Kordoba, an ageing system developed for the German market by Siemens. As it was designed for medium-sized banks, Postbank needed 14 systems running in parallel. Maintenance, cost, flexibility and the age of the technology all became issues.

Postbank chose SAP to supply its new system even though, at that time, it lacked some important features such as support for multiple delivery channels and risk management. “We were looking for a flexible and modular standard software. We also needed an established player who understood the German banking environment and with whom we could maintain a long term relationship,” says Dr Thomas Mangel, a member of the management board of Postbank Systems.

Postbank and SAP agreed a co-development strategy aimed at providing the bank with a modern core banking engine, and the vendor with an enhanced system that it could later offer to the market.

Teams from SAP and Postbank began development work in late 1999. “We adopted a phased rollout approach to minimise the risks of the overall migration effort,” explains Rainer Fassnacht, General Project Manager SAP, at Postbank.

In 2002, the bank went live with a centralised application for storing and managing all customer information. A year later, it switched all 4.5m cheque accounts over to the SAP system, mortgage accounts were migrated in 2004 and in 2005, Postbank moved 17m savings and deposit accounts to SAP.

“We have successfully replaced the 14 Kordoba systems and are now only running on SAP,” says Fassnacht. He adds that despite the phased migration, each step felt like a ‘big-bang’ wholesale migration. ”A project of this magnitude and duration which involved intensive testing in a live environment is immensely challenging. To be successful, it is very important to not only have top management commitment, but have a buy-in from the entire organisation,” says Dr Mangel.

Postbank’s new core banking solution is now the basis for its multi-channel architecture and has successfully reduced the time to market for new financial products and services for its customers. Furthermore, the bank has simplified its IT by re-engineering processes and consolidating data centres.

Postbank spent more than €200m on the core systems replacement project, but Dr Mangel says the payback is the reduction in overall process complexity.

Christian Goeckenjan, VP Financial Services at SAP, says: “Banks have realised that all their processes, while they may be highly complex, do not necessarily add much value to the organisation. A core systems replacement project provides banks with an excellent opportunity to streamline and re-engineer their back office processes.

“At Postbank, for instance, the number of deposit related processes have reduced from more than 120 to 35 which has positively impacted the bank’s profitability.”

read the article

Tuesday, May 09, 2006

German bosses face shorter contracts (FT)

The long contracts awarded to German senior executives could be shortened if reformers on the government’s corporate governance commission force through proposed changes next month.

According to the agenda of the Regierungskommission Deutscher Corporate Governance, which holds its next meeting in Berlin on June 22, the 13-strong panel is to debate a proposed shortening of contracts from five years to three years, a move that would shift Germany more into line with international norms.

If the motion is passed, companies would have to comply, or explain why they should be exempt.

International corporate governance standards have been making steady inroads into Germany in recent years, as foreign investors increasingly make their presence felt. Last week, Hermes, the activist UK pension fund, led a revolt against corporate governance at Volkswagen.

The length of senior executives’ contracts has traditionally been seen by German companies and executives as a defence against being ejected from their jobs. Executives are typically paid for the remaining portion of contracts if they leave early.

Last year, Werner Seifert, Deutsche Börse’s chief executive, walked away with a €10m ($12.7m) pay-off after being forced out by rebel investors.

Clemens Börsig, Deutsche Bank’s finance director, recently agreed to move from the role of finance director to supervisory board chairman – in part, according to people close to him, because he would receive the four years’ entitlement remaining on his executive contract alongside his chairman’s pay.

Reformists on the commission, such as Christian Strenger, a board member at fund management house DWS; Ulrich Hocker, head of the DSW small shareholders’ association; and former Deutsche Börse executive Volker Potthoff, are pushing for urgent change.

Mr Potthoff said: “German contracts should move into line with international norms. In that context, three years is more appropriate than five.” UK best practice is now a one-year contract.

International governance experts dismiss claims that a period of less than five years is insufficient for chief executives to prove their strategies.

David Dando, a director at Georgeson Shareholder Communications, a firm specialising in proxy voting, said: “Investors would always give chief executives two or three years to prove themselves. But to get a five-year pay-off if they’re not performing is absolutely generous.”

Since the commission’s most controversial reform, that covering the disclosure of executive pay, companies are now forced by law to “comply or explain”, following new legislation last year.

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Monday, May 08, 2006

German consumers fear worse times ahead (FT)

Why don’t Germans spend, borrow and consume like their US counterparts? Dawdle for an hour or so over coffee in the food court at the US Army’s Cambrai-Fritsch Kaserne in Darmstadt, southern Germany, and the conundrum transfixing Europe’s biggest economy becomes a little easier to understand.

“It is the American mindset – it is about more material things,” says a 32-year-old from New Jersey who works in administration at the base and gives her name as Holly. “Americans will gauge their success more on what they have at home, rather than how much they have in their bank account,” adds her friend Kari Gallagher, 28, from Michigan. “My German friends buy one good shirt, not five. They do worry about money more than we would.”

Their casual reflections on the relationship between shopping and the national psyche may contain more wisdom than they realise for policymakers grappling with Germans’ stubborn refusal to spend.

With business confidence at a 15-year high, according to last week’s closely watched Ifo institute survey, this reticence is frustrating politicians and central bankers alike. The European Central Bank argues that it has done all it can to boost growth by delivering low interest rates and low inflation. There are indeed signs that export growth is feeding through into domestic investment spending.

But how has the German consumer reacted? Retail sales fell unexpectedly by 2.7 per cent in March, according to data on Friday that pointed to only a modest bounce-back in consumer spending in the first quarter after the weak last few months of 2005.

Consumer confidence indices suggest morale is improving – but those are not necessarily good forward indicators of actual expenditure. And after four years of weak growth in, or even falling, consumer spending, the mood could hardly have worsened. Since the exceptional period immediately after unification in 1990, German consumer spending has never matched the pace in the US or UK.

“The darkest hours may be behind us,” says Dirk Schumacher, economist at Goldman Sachs in Frankfurt, “but it is too early to get excited about German consumption.”

The result is a lopsided German recovery. Even the most optimistic forecast sees overall economic growth rising scarcely above 2 per cent this year. The International Monetary Fund is predicting just 1.3 per cent: hardly what the US or the UK would call a boom. Worse, the Berlin government’s plans to raise value added tax by 3 percentage points next year will slam the brakes on consumer spending and gross domestic product growth in 2007 – although arguably some spending may be accelerated in anticipation of higher prices ahead.

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Wednesday, May 03, 2006

Deutsche Bank looks for acquisitions as profits soar (FT)

Deutsche Bank became an undisputed bulge-bracket bank yesterday, after trouncing expectations for first-quarter performance, with record profits and a 40 per cent pre-tax return on equity.

Hailing the result as “outstanding”, Josef Ackermann, chief executive, said in an interview with the FT that he was interested in cementing Deutsche’s strength through acquisition. “Retail [banking] is primarily where I see opportunities for acquisitions,” he said. “A deal could be anywhere between €1bn and €5bn, but I also would not exclude something bigger if it makes strategic sense.”

Mr Ackermann said future growth would not come at the expense of regulatory slip-ups. There would be a “zero tolerance” approach to transgression, he said, in response to last month’s £6.4m FSA fine for market misconduct.

On the outlook for the year, Clemens Börsig, Deutsche’s finance director, who on Thursday moves to the role of supervisory board chairman, said the bank could “revisit [its] targets in the second half”, possibly upgrading the current 25 per cent ROE and double-digit earnings growth targets for the year. Analysts at Citigroup said ROE could be 30 per cent.

In the first three months of the year, Deutsche’s net profits surged 55 per cent to a record €1.7bn. The result, underpinned by strong market conditions generally, got a particular boost from rapid growth in equities sales and trading, and from corporate advisory business.

Deutsche executives said the figures catapulted the German bank into the top league of global investment banks, with only Goldman Sachs generating superior, though riskier, returns.
Huw van Steenis, analyst at JP Morgan, said: “This just underscores that Europe, Asia and emerging markets are outgrowing the US.”

Deutsche’s equity sales and trading revenues jumped 90 per cent to €1.6bn, driven by growth in equity derivatives and emerging markets. Advisory revenues rose 58 per cent to €180m. In retail banking, there was an 11 per cent increase in revenues to €1.3bn thanks to sharp growth in private client investment activity.

Overall, in corporate and investment banking, Deutsche saw underlying pre-tax profits rise 33 per cent to €2.1bn. In retail banking and asset management, profits rose 37 per cent to €558m.
But Mr Ackermann will be given little time to bask in the figures. The criminal court in Düsseldorf said last month that it wanted to begin a retrial of the long-running Mannesmann case in the summer.
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Deutsche Telekom stakes out role in telecom consolidation (InfoWorld)

DT open to acquisitions to maintain its position as Europe's largest telecom provider read