A recession in Germany? A major German credit institution going bankrupt? All "doomsday scenarios," German Finance Minister Peer Steinbrueck said Tuesday in Parliament.
Germany's credit institutions have lent bankrupt U.S. investment bank Lehman Brothers only "manageable" amounts, and, unlike the United States, Britain and Spain, Germany is not suffering from a real estate crisis.
All that is true, but don't forget that Steinbrueck's job is to soothe a worried public. The finance market, after all, is more about psychology than outsiders may think.
And toward the end of his speech, even Steinbrueck couldn't avoid dropping the c-word.
The "current financial crisis," he said, "without doubt is the largest market risk for the German economy." However, its impact would be "limited," he added.
German Chancellor Angela Merkel blew the same horn, telling lawmakers Wednesday Germany could be "happy that other centers of power have complemented the American center of power in the past years -- in Latin America, in the united Europe -- so the international economy now rests on a much broader base than was the case in past decades."
Most German economic experts back the German government's cool-headed outlook.
"Despite all concerns -- panic reactions are out of place," Martin Wansleben, head of the German Chamber of Industry and Commerce, told Wednesday's Berliner Zeitung newspaper.
Axel A. Weber, the head of Germany's central bank, also promised that Germany's financial system could withstand the attacks coming from across the Atlantic.
"The German financial system is stable, and its resistance to adverse shocks has markedly improved in the past few years," he said in a statement.
Germany's DAX stock index on Tuesday nevertheless plummeted to just under 6,000 points, its lowest value in more than two years. On Wednesday it started to climb back above the 6,000 mark after news of Washington's bailout for insurance company AIG; that didn't help much, however. At the end of trading, the DAX closed at 5,860 points, with experts forecasting a further drop to possibly 5,400. In January the DAX towered at over 8,000 points.
As a result of the global financial crisis, all major German economic institutions have lowered their growth forecasts for 2008, with a few even warning of a coming recession that could hit Germany in 2009. Germany's banks also have been affected.
Commerzbank has lost 30 percent of its share value in two weeks, although its recent acquisition of Dresdner Bank has to be partly blamed for the drop.
German insurance giant Allianz also has seen its shares go down in value, and, according to German financial daily Handelsblatt, a depositors' guarantee fund managed by a range of German banks will be hit severely by Lehman Brothers' bankruptcy. As much as $8.5 billion could be lost, the sum with which a German Lehman Brothers daughter is involved in the fund, the newspaper said.
Export activities -- Germany's strongest economic asset -- slowed in July, with German business confidence in August declining to a three-year low.
Luxembourg Prime Minister Jean-Claude Juncker, who chairs the meetings of euro-area finance ministers, said Germany will escape a recession, but even the U.S. federal rescue of AIG and news that British financial services provider Barclays was buying parts of Lehman Brothers did not mean indefinite relief.
"The financial crisis that is still raging, that has not yet reached even a temporary end, is causing us the biggest headache," he told Germany's Deutschlandfunk radio.
A large headache is also doomed to plague Steinbrueck, the German finance minister.
On Wednesday it surfaced that KfW, a German government-owned development bank, had poured some $424 million down Lehman Brothers' ailing throat -- just before the final collapse.
Steinbrueck, who was hardly able to contain his anger, called that investment decision "more than astonishing and aggravating."
All major German parties have called for an investigation into the matter -- after all, taxpayers' money has been wasted.
KfW has said the financial injection for Lehman Brothers was a "technical mistake."
A pretty expensive one indeed.
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