The leader of Europe’s biggest economy and the head of Germany’s largest bank, partners in a financial rescue two years ago, are rattling investors with their feud about how to manage the sovereign-debt crisis.
German Chancellor Angela Merkel and Deutsche Bank AG Chief Executive Officer Josef Ackermann, both of whom are airing their views at the World Economic Forum in Davos, Switzerland, this week, have disagreed publicly over who should bear the costs of future bailouts, international banking regulation and a German tax on nuclear-power producers.
The rift, including comments by Ackermann in November that Merkel was spooking markets, underscores wider divisions between Germany, France and other European governments. It has more than personal consequences, threatening to further unnerve investors concerned about Europe’s ability to tackle the debt crisis after a euro 750-billion ($1 trillion) rescue effort failed to stop the contagion spreading from Greece to Ireland. That has political and business leaders hoping for a rapprochement.
“We’re in a phase where markets are reacting very nervously to individual statements and rumors about the debt crisis,” said Philipp Musil, who helps manage about $11 billion at Semper Constantia Privatbank in Vienna. “This leads to insecurity in the market. It’s important what individual states and market participants say. We need more unity.”
Ackermann, 62, and Merkel, 56, who have called for solidarity to protect the euro, each have a lot at stake. Deutsche Bank has more than euro 10 billion of government debt in Portugal, Ireland, Italy, Greece and Spain. Merkel is trying to minimise the cost of a rescue to German taxpayers before elections this year in at least seven of the country’s 16 states. While the two agree on the need to salvage Europe’s political union and common currency, they disagree on the means of doing so.
Merkel demanded more concessions from Greece last year before agreeing to provide financial aid, while Ackermann pushed for quicker action to stem the crisis. Merkel also called for sovereign-bond investors, including German banks, to shoulder the costs of future national bailouts. That didn’t sit well with Ackermann, who blamed the chancellor for roiling markets and raising borrowing costs, criticisms echoed by the European Central Bank and governments in Ireland and Spain.