German Hedge Fund Threat is Politically Driven

The German Chancellor, Gerhard Schroeder, announced that his government is going to review the rules on hedge funds operating in Germany. He has said he might be "in favor of closer scrutiny" of hedge funds since he believes they might not be compatible with German values. One might be concerned that this is an anti-Anglo-American approach to investment governance, but in fact, this is merely anti-capitalist blather in advance of an election.

Hans Eichel, the German finance minister, went one better than the chancellor by suggesting "a Europe-wide supervisory body for hedge funds based on the German model." Meanwhile, Franz Muntefering, chairman of the ruling Social Democratic Party to which both the chancellor and finance minister belong, has called international investors "locusts" for their short-term thinking and consequent actions in the German market. At the same time, Achim Putz, who is chairman of Bundesverband Alternative Investments, a body that represents about 100 hedge funds in Germany, has said "This whole debate is crazy, groundless rubbish."

The event that sparked these outbursts was the toppling of Werner Seifert from his job as chief executive of Deutsche Borse. After he failed to bring off a merger with the London Stock Exchange a few weeks ago, some of the bigger investors (hedge funds TCI and Atticus) tossed him out on his ear. This is not how things are supposed to work in Germany, and it was made worse by the fact that TCI is British and Atticus is America-based.

But a quick look at the calendar will show that there is an election in the Germany lander of North Rhine-Westphalia this coming week-end. The SDP has run the lander for 39 years, and a defeat on May 22 would be a serious blow to the prestige and credibility of the Schroeder government. Recent polls have put the opposition Christian Democratic Union 10 points ahead of Mr. Schroeder's party. Seen through this prism, the recent outburst against foreign capitalism is nothing more than the SDP playing to its working-class base in a rather industrial region.

The review of the hedge funds is due for completion on June 13 at an SDP conference. At most, it will call for a few bits of red tape to slow down the operation of auslander moneybags. Mr. Schroeder gave away his real position at the opening of a BMW plant in Leipzig last week. He said, "We need foreign money coming into the country." Readers with a command of hochdeutsche are invited to help translate "much ado about nothing"


© Copyright 2005 by The Kensington Review, J. Myhre, Editor. No part of this publication may be reproduced without written consent.
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