Attended by more than 430 delegates, Euromoney’s 7th annual Germany Conference was once again a great success. Joerg Asmussen, State Secretary, Federal Ministry of Finance opened the conference by outlining Germany’s relative success in tackling the financial crisis; low interest rates have triggered an increase in investor appetite; trade and exports have remained strong; GDP is growing. Throughout the conference, however, the underlying threat of overconfidence was not forgotten. Mr Asmussen confirmed that the largest challenge facing Germany and other economically stronger countries within the Eurozone is, of course, the unresolved question of bailing out the weaker countries, in particular Greece. The opening panel of commentators and economists discussed in great detail the options for resolving the Greece situation and the threats to Germany and the other Eurozone members of a failure to address the underlying issues which have led to the Greek, Irish and now Portuguese interventions.

In a later discussion of the health of Germany’s states and cities, Eckhard Helms of NRW highlighted the view that Germany enjoys a very stable and reliable domestic bond market. Investor demand is increasing with 80% of demand coming from domestic institutions, accompanied by a recent surge in demand from Asia. He reinforced this argument by sharing the fact that the current deficit for all Bundeslaender in Germany has decreased by 40% compared to last year. Alexander Labermeier of Hessen was, however, more sceptical. Hessen has a €40bn pension liability which is slightly higher than that of the other Bundeslaender, proving once again that the situation is always relative and significant challenges remain. The panellists seemed confident, however, that Germany’s unique debt break and consolidation plan will provide Germany with a distinct competitive edge.

Interview with Dr Günther Bräunig, Member of the Managing Board, KfW Bankengruppe

The corporate situation in Germany was also perceived with optimism. The discussion began with a statement that most of Germany’s corporate needs have been successfully refinanced, with a higher proportion than ever before completed in the debt capital markets. Companies have moved steadily towards the financial markets since two years ago when the availability of bank finance was at an all-time low. Companies are, however, under no illusion that they will still need an active bank lending sector. All agreed that the banks are now in a much better position than previously and are managing their risk much more carefully. The audience was urged, however, not to forget that Basle 3 is crucial in this discussion, as the future effects of these new regulations are currently unknown and it may restrict the amount of capital available to companies from their banks. In terms of M&A, both Stefan Scholz of Continental and Steffen Diel from SAP shared their experiences and the differences in the M&A financing environment today as compared to before the crisis, which again re-emphasised the move towards the capital markets. All the panellists agreed we were moving towards a situation where 50% of German corporate finance was completed in the capital markets, with 50% roughly in bank lending. Matthias Minor from RBS summarised the corporate discussion perfectly by stating that “the crisis has reminded everyone that any corporate-bank relationship needs to be mutually rewarding”.

The debate on remaking Germany’s banks sparked some rather impassioned opinions on stress tests; predominantly that they should not be used as a simple “pass” or “fail” judgement, but rather incorporate clear parameters which highlight weaknesses, specifically in bad management, diversification and leverage. Furthermore, in addition to looking only at equity, the test should also examine funding and duration of funding. The general consensus seemed to be that stress tests are trying to tackle a complex issue based on specific assumptions, giving a result that is simply one of many possible scenarios.

Further in to this discussion it was contended that there is too much focus on capital, leaving liquidity issues neglected. In addition German banks need to find viable ways of funding themselves and improving profitability. The German banking system’s current profitability is about one third of the European average.

The final panel “Germany Inc” explored how the country is coping with inflation, which continues to increase due to rising oil prices and work shrinkage. Many German citizens fear that this may lead to a devaluation of debt instruments. However, it was highlighted that a small level of inflation is acceptable, and that the real concern should be the Bundesbank using monetary policy and the government increasing taxes in an attempt to counter inflationary pressure.

Finally, the question was raised of how Germany would handle an overheating situation if the economy continues to grow at the current rate. Increasing immigration was suggested, which then led to an engaging debate on whether increasing labour supply in this way would really compensate for Germany’s ageing population.

With top quality speakers covering a plethora of topical debates Euromoney’s Germany conference 2011 was a highly inspirational two days. We would like to say a big thank you to all our sponsors for their much appreciated support, and to all our speakers and delegates. We look forward to reconvening in April 2012 for the 8th instalment.

Sponsor presentations available for download:
(please click on the appropriate title to download the slides)

- Credit Agricole Corporate and Investment Bank: Covered Bonds in the grip of regulation