By Matthew Lynn
Germany should now learn to be a bit more financially driven, according to Matthew Lynn.
It never takes much to get German industrialists and politicians complaining about Anglo-Saxon capitalism. They line up to point out the flaws of UK and US businesses dominated by shareholders and driven by takeovers.
Their own version of the free-market economy — investment-led and export-oriented with a consensus between workers, managers and shareholders — will always win out, they say.
There may be another explanation for their hostility to wheeler-dealer capitalism: they just aren’t any good at it.
Porsche SE’s farcical bid to take control of Volkswagen AG; the crisis of the German banking industry; and the comical attempts of Deutsche Boerse AG to expand out of Frankfurt suggest the average German corporate boss knows about as much about global finance as Silvio Berlusconi does about feminism.
Germany is fast turning into the Inspector Clouseau of global finance: bumbling and accident-prone. It must change course or be left behind in a competitive world economy.
The nation of 82 million hasn’t been slow to lecture the rest of the world on the superiority of its own economic brand. The credit crunch has reinforced the view that its style of sober, cooperative capitalism is the only one that will work.
“Markets need rules, not unfettered capitalism,” German chancellor Angela Merkel said in a speech at the World Economic Forum in Davos, Switzerland, earlier this year. The crisis has been caused by irresponsible speculation and the excesses of the market, she said.
Those views are common in Germany. And yet for some really irresponsible — even stupid — speculation, you need look no further than Stuttgart. Porsche, the sports-car manufacturer based in that city, has been negotiating an audacious takeover of the much-larger Volkswagen, a company with which it has historic and family ties, for the past year.
In doing so, it incurred debts of more than €10bn ($14.3bn) buying Volkswagen shares, and then ran out of money to pay for them. Little attention was paid to financing the bid, though any corporate boss will tell you that is the crucial part of any deal. And when credit conditions got tighter, nobody at Porsche appears to have noticed that it was going to be harder to roll over the debts. It was arguably the most inept takeover attempt of all time.
Volkswagen ended up having to effectively rescue Porsche. Even worse, Porsche CEO Wendelin Wiedeking left the company with a €50m ($71.3m) severance package, an outrage that makes the excesses of Wall Street or the City of London look tame by comparison.
Or look at how some German banks ran up huge losses. Hypo Real Estate Holding AG was bailed out with more than €100bn ($142.7bn) in debt guarantees and credit lines from the government. Commerzbank AG also needed state aid, along with Bayerische Landesbank, IKB Deutsche Industriebank AG and HSH Nordbank AG.
With booming property markets, at least countries such as the UK and Ireland managed to have a party before the hangover. Germany just got the hangover.
And then there was the farce of Deutsche Boerses attempts to expand. The operator of the Frankfurt stock exchange tried to get control of London Stock Exchange Group Plc in 2004. When it failed, it tried to take over the French stock market, but was beaten by NYSE Euronext. It turned out that even Deutsche Boerse didn’t have much of a clue about what made stock markets tick.
Or consider Daimler-Benz AG’s takeover of American automaker Chrysler in 1998, an expensive deal that cost even more to dismantle with the units sale in 2007. That is still one of the most calamitous takeovers ever.
In reality, while the German economy is brilliant at creating new products and building brands and markets, it has never been as good at financial engineering, deploying capital effectively or at building global companies through takeovers.
Yet sometimes you need financial skills as well as industrial skills. And if you haven’t got them, as Porsche just discovered, the price can be a heavy one. After all, it isn’t as if the German economy has exactly sailed through the credit crunch unscathed.
The current recession is the worst that Germany has seen since the Second World War, Deutsche Bank AG said in a recent analysis of the economy. True enough. Germany has been hit hard by the global decline, and it is manufacturing companies that are suffering the most. Those are precisely the types of businesses that prided themselves on standing aside from all that Anglo-Saxon financial engineering.
Lots of countries are good at manufacturing, and more are joining from the ranks of developing nations every year. To succeed in the 21st century, companies have to be good at everything: making products and striking deals as well.
And while it is true that Britain and the US should learn how to be less financially driven, Germany should learn to be a bit more so. Perhaps Germany should spend more time learning how to play the game.
Matthew Lynn is a Bloomberg News columnist. The opinions expressed are his own.