The German government’s bailout of WestLB, one of the country’s largest regional Landesbanken, will, I am sure, be greeted with a cheer at the European Central Bank. Jean-Claude Trichet, ECB president, has been calling repeatedly for greater efforts to reinforce the eurozone’s banking system. Now it seems Wolfgang Schäuble, the new finance minister, has heeded his call and stopped all the political dithering over one of Germany’s worst performing banks. Berlin will provide up to €4bn to WestLB.
Berlin’s move is important to the ECB because the central bank is impatient to start implementing its “exit strategy”
- the unwinding of all the non-standard measures it took to shore up the eurozone banking system after the collapse of Lehman Brothers in September 2008. Having a banking system on a secure footing makes that easier. Much of the concern recently has focused on the eurozone’s weaker performing countries – for instance Greece. But as WestLB has shown, some of the biggest problems in continental European banking are not so far from the ECB’s headquarters in Frankfurt. More details of the ECB’s exit plans will be announced after its governing council meeting next week.
Of course, throwing government money at an ailing bank is the easy bit. Now Mr Schäuble has to cut through regional politics to drive forward consolidation of the German Landesbanken, to secure their long term future. The ECB will be watching carefully.