By Erik Kirschbaum
As Germany heads to an election with its banks unwilling to risk big loans, companies and politicians are fumbling towards a new political order.
Revolving around the rules governing a 115-billion euro ($160 billion) government fund to help troubled firms, it goes like this.
Chancellor Angela Merkel's government insists the rules are clear for companies seeking aid. Others, for example state governments, lobby for government backing for company rescues. A decision is made, not everyone sees why. And round again.
"It's all schizophrenic," said Gero Neugebauer, political scientist at Berlin's Free University. "The only explanation for the chaos is that there's an election. You're now seeing parties that used to rail against state aid throwing open the spigots."
The wrangling over which companies get help is confusing both the public and many of the publicly listed companies seeking support ahead of the Sept. 27 poll.
The main electoral tussle is between on the one side, Merkel's Christian Democrats and sister party the Bavarian Christian Social Union, and on the other the Social Democrats, led by Finance Minister Peer Steinbrueck.
"The government claims there are objective 'criteria' for the state help but instead it all looks very arbitrary to the public," said Neugebauer.
For example, GM's German unit Opel got billions of euros in support: sportscar maker Porsche got nothing. The government gave retailer Arcandor a thumbs-down that led to insolvency. But it gave an Arcandor subsidiary, Quelle, a cash infusion.
Quelle is a mail order company and besides struggling it is — significantly — Bavarian. It has dominated national news for weeks as federal and state governments squabbled over loans to keep it afloat.
Bavaria's conservative leaders headed by state premier Horst Seehofer demanded federal support — Seehofer posing for news media with a company brochure — while less enthusiastic federal leaders demanded more security.
In the end both federal and state governments agreed to back loans for 50 million euros. The sum — to finance printing a winter catalogue — was almost small enough to be symbolic.
"It's really annoying and unfair the way the government jumps in to help out big companies but drops the ball when it comes to small businesses that are really struggling," said Berlin cafe owner Dany Stein, who has had to let go of her part-time help as sales slumped in the past year.
CRITERIA
The government says the requirements for loans or outright state aid are simple: companies suffering due to economic crisis and those with a solid business plan are eligible to tap the fund, but those having difficulties before July 1, 2008 are not.
So from the government's point of view the problems at Arcandor, Porsche and family-run Schaeffler — an unlisted ball bearings group suffering from its leveraged takeover of car parts group Continental — are unrelated to the crisis.
"Some companies are trying to use these crisis instruments to make up for past management mistakes," Economy Minister Karl-Theodor zu Guttenberg told reporters in Berlin earlier this month.
Social Democrat leader Steinbrueck had already attacked Bavaria's Seehofer for his photo opportunity and determination to rescue Quelle, while opposing state aid elsewhere.
"Seehofer is only against state support for companies outside Bavaria," Steinbrueck told Bild am Sonntag newspaper on July 5. "He let himself be photographed as a 'savior' holding up a Quelle catalogue even though there was still a long list of issues relevant to taxpayers that still had to be cleared up."
Government officials insist they are doing what they can to keep politics out of the decisions, but a senior chancellery source told Reuters some regional politicians tirelessly try to pressure Berlin to bend the rules.
"We're making decisions based on the same criteria for everyone," the official said, on condition of anonymity because they were not authorised to speak to the media. "But there are politicians in the states affected who see things differently and apply pressure."
Luxury car maker Porsche's unsuccessful request for a 1.75-billion euro loan was to help manage debt acquired in its aborted bid to seize control of Volkswagen.
Porsche officials said they applied for state support because they believed they qualified for it — and Baden-Wuerttenberg state premier Guenther Oettinger of Merkel's CDU party continues to fight on behalf of it.
Porsche argues its weaker sales and cash flow as a result of the economic crisis have hampered its ability to service debt, but not everyone agrees.
"The government let Porsche crash into the wall," said Heino Ruland, an equities strategist at Ruland Research. "For the most part there are relatively clear criteria. But we're in an election year and that means criteria sometimes get suspended."
The unspoken rule seems to be: high-tech jobs and car industry jobs get preference over services, and size and locale matter.
Finance Minister Steinbrueck, who criticised Seehofer's support for Quelle, has fostered a reputation of fiscal prudence. But he comes from the state of North-Rhine Westphalia where a large Opel plant is located and was vocally supportive of state aid to rescue Opel and its 25,000 employees in Germany.
His SPD party, with traditional ties to labour unions, often leans towards a more interventionist role to support struggling firms and is accentuating that now.
"If this were not an election year, it would have been a lot harder for Opel to get state backing," Ruland said.
There was bitterness among Opel workers even after the government agreed to help because Economy Minister Guttenberg, who is also Bavarian, had adamantly opposed that aid. Opel workers said they felt he would have been singing a different tune if BMW, a Bavarian carmaker, were in need of help.
Guttenberg has become one of Germany's most popular leaders for taking a hardline stance against handouts but despite a cultivated no-nonsense image, himself invited ridicule when he posed reading fairy tales to a group of school children in Berlin last week.
Newspaper captions pointed out wryly that the Economy Minister is good at telling fairy tales.
