[A-List] Germany: Kirch crisis

[Keaney Michael]

Schröder raps rival for Kirch media crisis

John Hooper in Berlin
Tuesday April 9, 2002
The Guardian

Chancellor Gerhard Schröder seized on the collapse of Leo Kirch's
German media empire yesterday to make his most savage attack yet on his
opponent in the forthcoming general election.

Minutes after the core company in the Kirch group was officially
declared bankrupt, Mr Schröder ripped into Edmund Stoiber, head of the
Bavarian government, accusing him of incompetence and dishonourable
conduct.

He gave warning that he intended to make Mr Stoiber's role in the affair
a central issue in the election.

Mr Stoiber's government controls the Bayerische Landesbank, which poured
at least EUR1.7bn (£1.06bn) into Mr Kirch's enterprise as it headed
for the financial rocks. His part in the events leading up to Germany's
biggest bankruptcy is crucial to his chance of success in September.

He was chosen by his fellow Christian Democrats precisely because of his
reputation as an interventionist job-creating leader. Under his
stewardship, Bavaria has been transformed from a picturesque rural
backwater into a centre for cutting-edge industries such as the media.

Leo Kirch, a lifelong Christian Democrat, has had a close relationship
with both Mr Stoiber's government and that of Helmut Kohl, which ran
Germany until four years ago. He was the biggest single contributor to a
fund started by Mr Kohl two years ago to pay the fine imposed on his
party because of his acceptance of secret donations.

Mr Schröder told a press conference in Berlin: "What has happened is
highly questionable from the point of view of economic policy." He said
there was considerable doubt about the value of the collateral made
available by Kirch for the bank's loans.

But, he said, the affair involved "not only incompetence in economic
policy, but also personally dishonourable behaviour".

The way in which Mr Stoiber had tried to distance himself from his old
friends in the Kirch group as the affair progressed was "not exactly
what you would call humane, and I think it will play a certain role in
the near future in the contest that lies ahead of us".

The leader of the Christian Democrats in parliament, Friedrich Merz,
leapt to Mr Stoiber's defence, saying that he had done no more than
create a framework in which business could flourish in Bavaria.

But it was clear that the chancellor had landed the important first
punch in a scrap in which he himself is vulnerable.

Kirch's bankruptcy is the fourth big corporate failure in Germany in
less than a month. The planemaker Fairchild Dornier, the builder Philipp
Holzmann and the Berlin office supplies company Herlitz have all sought
protection from their creditors, putting at risk tens of thousands of
jobs at a time when one in 10 Germans are looking for work.

The bankruptcies have underlined the depth of the economic downturn and
the failure of Mr Schröder's government to create the jobs it promised
when it was elected in 1998.

This particular collapse, moreover, threatens a chain reaction that
could reach into many parts of German society. More than half the
football clubs in the Bundesliga, for example, are thought to depend on
payments for television rights which until now have been met by the
Kirch group.

Mr Schröder planned to put up to EUR200m into an emergency fund for
them, but the idea of risking taxpayer's money to sustain the lavish
salaries of Germany's professional footballers and coaches met with
overwhelming disapproval.

Yesterday the league yesterday revealed that the clubs had been putting
aside a part of their television income.

Full article at:
http://www.guardian.co.uk/international/story/0,3604,681065,00.html

Michael Keaney
Mercuria Business School
Martinlaaksontie 36
01620 Vantaa
Finland

michael.keaney at mbs.fi