The world is a grim place in the wake of the financial crisis, and it won’t get better soon, says Peer Steinbrueck, the German Social Democrat who served as finance minister under Angela Merkel from 2005 to 2009.
Steinbrueck, 63, is the country’s first senior government official then in office to write a book about the cascade of disasters triggered by the collapse of Lehman Brothers Holdings Inc. He proved an adept crisis manager, winning praise from across the political spectrum.
Yet he devotes only a relatively short passage of his new book to an insider’s account of the crisis. “Unterm Strich” (“On Balance”) presents Steinbrueck’s world view -- his sometimes scathing, always thoughtful analysis of everything from the dire state of the Social Democratic Party to the undervalued yuan; from undercapitalized German banks to shoddy personnel choices in the European Union.
North Germans aren’t known for over-enthusiasm and optimism. Steinbrueck, a tall, bespectacled and balding chess player from Hamburg, is no exception.
“The bad days of the last few years could in the long term come to be viewed as the good old days,” he cheerily observes.
There’s plenty to be bleak about. Europe faces a wall of debt looming “like the north face of the Eiger,” Steinbrueck says. If euro countries fail to apply their deficit rules, “Greece was just a chilled palate-teaser, a foretaste of what could happen to the euro,” he writes.
A breakup of the European currency zone isn’t unthinkable, though it would be a catastrophe, he says. The Greek crisis exposed what he describes as “the birth deformities of European currency union” -- the absence of common economic policies. The idea of creating them now is an “illusion,” he writes.
Steinbrueck, who has relinquished all his political duties apart from a seat in parliament, is careful to neither praise nor attack Merkel, who belongs to the rival Christian Democratic Union, the bigger partner in the coalition in which he served. He does, however, chide her government for not responding more rapidly and graciously to the Greek debt crisis.
In a rare political-insider cameo, Steinbrueck recalls meeting George Papandreou in January 2009 in Berlin, when the current prime minister of Greece was still in opposition. After soliciting deficit-reduction advice, Papandreou remarked, tellingly, that “he was no longer sure he really wanted to win the election.”
Germany’s current economic recovery is a temporary phenomenon prompted by low interest rates and government stimulus, Steinbrueck says. Underlying growth won’t recover for four to five years, he gloomily predicts.
Steinbrueck describes Tuesday, Sept. 16, 2008, the day after Lehman filed for bankruptcy protection, as “one of the most dramatic days of my political life.” After speaking in parliament with “the world teetering on the edge of an abyss,” he met a former U.S. treasury secretary for a long-arranged appointment.
“Even Robert Rubin couldn’t explain the Lehman case to me,” Steinbrueck writes.
Next at his door were European Central Bank council members Axel Weber and Mario Draghi, urging him to lobby U.S. Treasury Secretary Hank Paulson to keep insurer American International Group Inc. afloat.
“They painted in the darkest colors the uncontrollable chain reaction that would follow,” Steinbrueck said. Paulson, whom he reached that afternoon, said he couldn’t immediately promise a rescue.
Steinbrueck’s own AIG-style calamity was Hypo Real Estate Holding AG, which was later rescued in Germany’s biggest bailout since World War II. He doesn’t mince words, especially when discussing the Hypo’s chief executive at the time, Georg Funke. Days after saying the bank needed 35 billion euros ($48 billion) to avert disaster, Funke increased the amount to 50 billion.
Not one to suffer fools gladly, Steinbrueck says he felt “betrayed” by this “scene from a madhouse.” He voices disgust at Funke’s “mixture of denial, self-importance and cluelessness.”
Steinbrueck, whose political hero is former Social Democratic Chancellor Helmut Schmidt, has been mooted as a possible candidate for Germany’s top political job himself. Though he may well be his party’s choice in the next election, he says he often feels alienated by the SPD because it’s doing too little to attract “the most productive core of society.”
The book doesn’t discuss his ambitions. It does suggest that Steinbrueck is better at identifying risk than opportunity. He would hardly make for a chancellor with vision. It’s easier to imagine him heading the International Monetary Fund.
“Unterm Strich” is published in Germany by Hoffmann und Campe (480 pages, 23 euros).
(Catherine Hickley writes for Muse, the arts and leisure section of Bloomberg News. The opinions expressed are her own.)
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