Contributing Editor Laura Cohn is filling in for Claire Zillman through today.
Angela Merkel can’t seem to stay out of the headlines this week. As I mentioned on Monday, the German Chancellor is facing a key leadership test over her attempt to press other EU countries to follow her lead and welcome more immigrants in order to alleviate Europe’s refugee crisis. But now, she’s got Deutsche Bank to worry about.
As Fortune‘s Geoffrey Smith writes in this smart piece, Deutsche’s shares have taken a beating in recent days, ever since a weekend magazine report said Merkel’s government wouldn’t bail it out—even if the bank needed to raise money to settle the Department of Justice’s claims related to its sales of mortgage-backed securities. Smith goes on to make the point that speculation has already started on whether, if push comes to shove, Berlin would let Germany’s biggest bank fail.
The thing is, the political price of bailing out Deutsche is simply too high. As Bloomberg puts it, government action would be “electorally toxic,” particularly since Merkel is already grappling with a pushback on immigration and a decline in the polls. With federal elections less than a year away, the best solution for Merkel may be to put off any decision until after the votes take place. In the meantime, look for Germany’s leader to keep leading the news.
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