Hard Politics, Soft Money

The current parliamentary campaign is awash in cash. But will it affect the result?

With Germany's campaign for national elections on Sept. 18 in full swing, the country's top political parties will spend some $60 million on image consultants, print advertisements, arenas to hold rallies, and campaign placards -- black, red, and gold for the center-right Christian Democrats; red and white for the center-left Social Democrats. Public financing pays for the bulk of those costs, but a lot of money finds its way into party coffers through a murky web of donations from individuals, assorted interest groups, and, most importantly, corporations.

Will this campaign feature the financial shenanigans so common in the past? In the late 1990s, the nation was shaken by former Chancellor Helmut Kohl's admission that he personally accepted hundreds of thousands of deutsche marks that were not reported. That led to reforms in 2002 -- mostly limited to increasing transparency. Today, there are still few obstacles to shoveling cash into the coffers of favored parties or politicians in Germany. Companies or individuals can donate unlimited amounts -- unlike France, which sets a maximum of $5,500 per election for individuals and bars corporate gifts altogether. Donations under 10,000 euros in Germany needn't be disclosed at all.

All of which has fed voter cynicism. Some 59% of Germans mistrust their political parties, according to a survey released July 27 by consultant McKinsey & Co. "It's legalized corruption," says Hans Herbert von Arnim, a professor at the German University for Administrative Sciences in Speyer and leading critic of the campaign finance system.

Big donors insist their gifts to parties are designed to support democracy, not buy access. Some companies now go out of their way to spread the wealth -- and hedge their bets. For example, Allianz (AZ ), a Munich-based insurance and banking colossus, gives exactly 50,001 euros to each of the five political parties represented in Germany's Bundestag. Both the donations and the fact that Allianz gives just enough to require full disclosure are "an expression of our civic duty," says Nicolai Tewes, the company's director of corporate relations.


Other companies are equally evenhanded. But overall, Germany Inc. is solidly behind Angela Merkel, head of the center-right Christian Democratic Union. She's the front-runner in the upcoming national elections. Merkel took over as CDU chair in 2000 after the campaign finance scandal swept aside Kohl's protégés. That hasn't stopped the CDU and its sister party, the Bavaria-based Christian Social Union, from collecting some $2.7 million from big donors since the beginning of 2004. Chancellor Gerhard Schröder's Social Democratic Party has taken in just $637,000.

That's no surprise. Merkel, who has not been implicated in any improprieties, doesn't hide her desire to enact pro-business policies such as lower taxes and fewer labor market regulations. That's earned her party big donations from such outfits as Deutsche Bank and the Bavarian Metal & Electronics Industry Assn., which includes Siemens and BMW (DB ). It's unclear how decisive the private money is. Political parties receive ample public funds and free television time. The CDU and SPD each collected more than $50 million in taxpayer subsidies in 2004.

Still, running a modern-day campaign has become more expensive as German parties adopt U.S.-style methods to shape candidates' images and get out the vote. Extra cash comes in handy. "Campaigns have become much more professional and thus more expensive," says Dagmar Schröder, executive director of anti-corruption group Transparency International in Berlin. "Naturally the big donations make it easier." But as far as many critics are concerned, the whole private giving system leaves plenty of room for abuse.

By Jack Ewing with Gail Edmondson in Frankfurt

Before it's here, it's on the Bloomberg Terminal.