GERMANY:FOR ANYONE struggling to understand the European dimension of Ireland's financial crisis, Berlin's debt clock is a good place to start.
On a rainy afternoon yesterday, the red digital display in the city centre read: €1,705,435,032,995. Germany owes €1.705 trillion, or €20,000 per head of population, a debt that increases €2,600 every second.
If Ireland requires a €40 billion bailout – one of the lowest estimates floating around – Germany, based on its share in the European Central Bank, would shoulder the largest share, a fifth of the total. Instantly, the Berlin debt clock would jump by €8 billion, the equivalent of lifting €100 from the pocket of every German.
The German Taxpayers’ Association (BdS), which operates the debt clock, says people contacting them are concerned by the Irish situation but are aware that Ireland’s situation differs from Greece. “Nevertheless people here are concerned about the EU turning into a transfer union,” said BdS spokesman Matthias Warneke. A transfer union is the term for a situation where money flows from richer to poorer states. “For that reason we think investors who financed all of this mess shouldn’t push their luck . . . they have to make their contribution as Chancellor Angela Merkel is demanding.”
Ireland owes Germany $138 billion (€101 billion), according to figures from the Bank for International Settlements in Basel. Some $118 billion is owed by “non-bank private” debtors while some $46 billion is owed by Irish banks.
Deutsche Bank and Commerzbank, Germany’s largest lenders, have what they describe as low-level exposure in Ireland: about €300 million and €100 million respectively. For Deutsche, its Irish loans are a drop in the bucket compared to the €20 billion it has loaned in Germany.
The situation of Dublin-based Depfa bank and its Munich parent company, Hypo Real Estate (HRE), is more complicated. The HRE group is owed about €300 million by Ireland but itself owes €10 billion to the Irish Central Bank as part of an ongoing securities exchange deal known as “repos”. HRE also has Irish loans in its related bad bank but is unable to calculate their worth at present.
Germany’s insurance companies say their exposure to Ireland is “marginal”, a single-digit billion figure, modest compared to their combined capital of €1.2 trillion.
“According to our preliminary estimates, our investments in Ireland are even less than those in Greece,” said a spokesman for the German Insurance Industry Association (GDV). Speaking at the GDV annual conference, Dr Merkel sent a not-too-subtle hint to Ireland yesterday. “We have a European support mechanism and if a country believes it needs to use it, that’s what it is there for.”
Dr Merkel is nervous about having to tap the German taxpayer for a second, multibillion loan just six months after the Greek bailout. That would be an admission that the euro has opened the door to the German nightmare of a “transfer union”.
Waiting too long, however, risks making the situation even more costly for Berlin.