The Banker's Big Pay-off

There is nothing like a good old fashion German banking scandal to draw excitement. While it lacks the tabloid zest of a political sex scandal or the intrigue of US Congressional hearings designed to let some obscure nominee disgrace himself/herself, a German banking scandal - a really good German banking scandal - draws to it issues that at first may seem entirely extraneous to the scandal, and at the end of it some way or other all the big European banks look rather ridiculous - at least for a short while.

The most recent German banking scandal - which involves the Bundesbank Governor General Ernst Welteke - may evolve into one of the country's most memorable. On behalf of his wife, his two adult sons, and one of the son's female companions, Mr. Welteke apparently accepted a gift of four nights at Berlin's Albion Hotel paid in full by Dresner Bank. The final bill for all these guests at the Albion was EUR7,624.53. The bill was revealed during a regular BundesBank audit of Dresner's accounts.

Mr. Welteke denies any wrong doing, but he has been placed on administrative leave, and the matter is now "under formal investigation" - official speak for "No one will mention this again, and hopefully because of that silence, the whole problem will quickly and miraculously disappear". But the problem will not vanish so simply.

Among Mr. Welteke's duties at the BundesBank was his role as an ECB governor. Since the IMF director Horst Kholer was designated as the next President of Germany, the negotiations within the ECB to to reshuffle its state governorships will be intense. The next IMF director likely will come from Spain, which will mean Spain will relinquish its ECB seat. Add to this mix that many of the new EU member states have expressed interest in and have undertaken activities to join the euro-zone. Add also the ongoing saga of the EU's apparent perpetual inability to create any semblance of a constitution to govern itself. Arguably as the EU's most influential member state, Germany will be in an ideal position to lead the discussions on ECB reorganization. The BundesBank and Mr. Welteke already have made substantial contributions to euro policy. With a major scandal at the BundesBank, that position and that ability may be viewed more skeptically.

So what should the BundesBank do? Things do not seem very favorable for Mr. Welteke. Should the BundesBank board instruct him to submit a resignation letter followed by profuse thanks by the board to Mr. Welteke for his service? Nothing is ever that simple in business. Should Dresner Bank be required to issue a statement to explain the gift to Mr. Welteke? That would be no more useful than the typical non-denial denial. Mr. Welteke should of course pay Dresner the EUR7,624.53.

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