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Falling over backwards for the Mittelstand

Eichel: Struggling to engage high
gear at Germany's jobs motor

If the role of a banking system is to finance corporates through the bad times as well as the good, the German system is failing. At least that's what the recent decision by the Federal government to establish a Mittelstand bank strongly suggests.

"Small and medium-size enterprises are Germany's job motor," said finance minister Hans Eichel in an after-dinner speech in Frankfurt at the inaugural monetary stability foundation conference in December. "We must get it into high gear."

But surveys from such institutions as the IFO and Kreditanstalt für Wiederaufbau (KfW) suggest that the Mittelstand - 98% of German corporates - is fighting to survive. KfW found that one firm in three is having trouble renewing credit lines. And the smaller the company, the harder they're finding it.

Another public bank with a social mandate So the government has taken matters into its own hands and decided to merge the SME financing activities of German development banks KfW and Deutsche Ausgleichsbank (DtA).

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