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Missing a great historical chance?

In a new round of negotiations on state support for German public-sector banks, the European Commission and the German government are urgently seeking a solution. But they are not the only participants in the dispute. The stakes are high for the municipalities and federal states which fear the demolition of the whole public-sector banking system. They are not ready to give in without a fight that might yet widen into a complex legal dispute requiring years to resolve. As the conflict intensifies, the public banks still have the chance to become strong, independent institutions.


A legal crisis is brewing in Europe over the status of German public-sector banks that, taken to its extreme, threatens the EU itself.

The European Commission (EC), urged on by private-sector banks, says guarantees for state-owned Landesbanken and municipality-owned Sparkassen are incompatible with EU law.

The public banks refute these allegations and argue that German private banks are seeking to enforce their privatization as a prelude to scooping up efficiently functioning Sparkassen and Landesbanken to cover their own embarrassing failure to build decent banking businesses in Germany.

Will the private banks get their way? Will the dispute over the Landesbanken be taken to the European courts? Or will the Landesbanken and Sparkassen turn the tables on their private-sector opponents and merge into new powerful banking franchises? Investors are looking on with some anxiety.

Already, the German public-bank sector is showing the first signs of change.

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