Freedom by Angela Merkel

Author:Angela Merkel
Language: eng
Format: epub
Publisher: St. Martin's Publishing Group

GLOBAL ECONOMIC CRISIS

Armida and IKB

SIX WEEKS LATER. Saturday, July 28, 2007, approximately 7:25 p.m., the Felsenreitschule, Salzburg. Along with our friends Ilse and Martin Bartenstein, Joachim and I were looking forward to the premiere of Joseph Haydn’s opera Armida at the Salzburg Festival. We’d just taken our seats in the auditorium. A few moments before the lights were due to be dimmed, I took my cell phone out of my purse to quickly check for messages. I couldn’t believe it—even though it was a Saturday evening, my economic advisor Jens Weidmann had sent me a brief text message: “Problems with IKB. Can we talk?” Weidmann had been head of the Chancellery’s directorate for economic and financial policy since the beginning of 2006. At just thirty-nine, he already had an impressive career under his belt. As an economist, he had previously worked at the International Monetary Fund (IMF), as secretary general of the German Council of Economic Experts, and as a departmental head at the Bundesbank. If Weidmann was sending me a message at that time on a Saturday, it had to be about something important. I opened my opera program to see when the interval would be: around 8:50 p.m., I read. I quickly replied: “At the opera. Will ring before 9.” The performance began. Meanwhile, thoughts were rattling around in my head: What’s IKB? The abbreviation didn’t mean a thing to me.

During the interval, I immediately looked for a quiet spot and rang Jens Weidmann. “What’s happened? And more to the point, what’s IKB?” I asked him. He explained: IKB Deutsche Industriebank AG was a Düsseldorf-based credit institution, its roots dating back to the 1920s. The bank focused particularly on providing long-term investment loans to medium-sized companies and passed on money from public funding programs to its customers. It also functioned as a pass-through bank for the Kreditanstalt für Wiederaufbau (KfW), the government’s development bank, which was IKB’s largest single shareholder at the time. KfW was, and still is, a public institution and executes orders from the German government and the federal states. It supports small and medium-sized enterprises, freelancers, and start-ups, and it finances infrastructure projects, housing construction, and environmental protection with loans, among other things. I knew it from my time as minister for the environment.

“So what’s happened to IKB?” I asked Weidmann.

“In 2002, IKB founded a special purpose entity in the States called Rhineland Funding, offering subprime real-estate loan products, in other words loans for customers with low credit ratings, on the US market. IKB has given this company liquidity guarantees amounting to €8.1 billion,” Weidmann replied, before moving on to the actual problem: “In the spring, the market for these loans in the States slumped into a crisis because of rising interest rates and falling real-estate prices. As a result, this special purpose entity’s investments have lost a lot of value. There’s a risk that it will have to call on IKB’s guarantees as a result of its losses. But IKB hasn’t taken the precautions it should have for this kind of situation.

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.