Industry and Finance in Germany since Unification

Abstract

Since German unification there have been dramatic and highly visible changes in the German financial system and relations between banks and firms in Germany. The traditional Hausbank system has weakened, as securities markets have become more important for both borrowers and savers. The demands of financial investors on how German firms manage themselves have—for better or worse—become increasingly influential in this time. In this article, I advance the thesis that bank-industry relations in Germany became increasingly differentiated, with one set of firms moving into an institutional environment readily characterized as market-based finance. Meanwhile, most German firms remain in a bank-based environment that, while not quite the same as the Hausbank model that prevailed at the time of unification, is still easily recognized as such. These changes in the financial system have had numerous consequences for the German economy, including increased pressure on firms to make greater profits and increased pressure on labor to limit wage gains and make concessions in the interest of corporate competitiveness.