14 May 2005 Blog Home : May 2005 : Permalink
BERLIN, May 14 (Reuters) - Germany is investigating how it can limit speculators' ownership rights after Chancellor Gerhard Schroeder pledged to monitor hedge fund activity more closely, according to a report in the Welt am Sonntag newspaper.
The report was made available on Saturday and, citing government sources, said one proposal under discussion was whether shareholders had to have held stock for a particular length of time before they could exercise company voting rights.
Such a move would counter hedge funds which typically look to acquire underperforming businesses and swiftly sell them on after restructuring, a process that can bring heavy job losses but which is sometimes the only means left to save struggling firms.
Can you think of a better way to discourage investment? other that is from the existing rules about not being able to fire people without giving a large payoff etc etc. No? well never fear Germany's elite politicians have come up with an alternative - stealth regulation. As the report continues:According to the report, Eichel wanted all European hedge funds to be controlled by one supervisory body.
"The German government is working towards a Europe-wide harmonisation of hedge funds, which should equally protect shareholders, ensure financial market stability and support the development of a dynamic hedge-fund market," the newspaper quoted from an internal Finance Ministry report.
So hedge funds have done something we don't want and can't control because they are in London. We must control them to stop them. But you have to love the mixture of chutzpah and cluenessness of the excuses. "Protect shareholders" - how exactly are shareholders protected by having rules that make hedge funds unwilling to buy shares? and "development of a dynamic hedge-fund market" - it is of course well known that German and European regulators are far more dynamic that their Anglo-saxon counterparts but the markets they regulate seem to exhibit the dynamism of a three day old cat. Fortunately, at least one of the elite politicians and advisors has got a basic understanding of the concept of cause and effect:However, Welt am Sonntag said there were critics among Eichel's advisors who said treating hedge funds differently in Germany from any other shareholders would simply send investors elsewhere.
This anonymous advisor seems to be more clued into reality than the Chanceller as reported in yesterday's FT:Mr Schröder said there might be an argument “in favour of closer scrutiny” of hedge funds to check whether their philosophy was “compatible” with German society, adding: “This is the issue that needs to be considered.”
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Mr Schröder [...] said his criticism was not a general attack on foreign investors or private equity funds. “We need foreign money coming into the country.”
The comments were made at the opening of a new BMW factory in Leipzig which will employ about 5000 pople directly and another 5000 indirectly. What the FT failed to mention (along with most of the rest of the media) is what David's Medienkritik points out, namely that the BMW factory was only located there because of some large state incentives:BMW's total investment of 1.3 billion Euro was helped by 350 million Euro taxpayer money. And that definitely doesn't even include support from the state run worker's unemployment insurance system for the creation of new jobs that typically is part of any large investment in east Germany.
Assuming the additional support rounds up the state investment to €500m (and it could well be more) that works out at about €100,000 for every job directly created. Even with the usual 50% tax rates on salaries that will take a few years to recoup.