The Cum-Ex Affair Comes Back to Haunt Germany’s Ruling Class

In addition to the numerous warnings about the de-industrialization of Germany, evidenced in the severe decline of the automotive, construction and chemical sectors, the future political stability of the country is increasingly called into question. The continuous erosion of the approval ratings of five of the six parties in the Bundestag, and the continuous rise of those for the sixth party — Alternative for Germany — are one cause of concern.

However, a new crisis for the major parties is emerging around the “cum-ex” affair, a scheme of multiple tax fraud created by banks and investment funds, which defrauded the country of up to €30 billion between 2001 and 2016. Launched by the Cologne District Prosecutors, a trial began in Bonn on Sept. 18 against Christian Olearius of the Hamburg-based Warburg bank, on charges that he had sympathizers in the Hamburg city-state administration, who allowed him to get away with €45 million of unpaid taxes. The mayor of Hamburg at that time was none other than Olaf Scholz – the current Chancellor of Germany.

Summoned to testify on several occasions as to whether he had discussed a general pardon for Olearius in various private meetings, Scholz has evaded a clear answer by claiming that he could “not remember in detail” the content of the discussions. This helped Scholz avoid problems with the Hamburg prosecutors, but has not worked with those in Cologne, who are in possession of more compromising leads. Scholz will thus face more questioning about his political past in Hamburg, before he was named German Minister of Finance in 2017. And the decline of popular support for his party, the SPD, will likely accelerate as the “cum-ex” investigation proceeds.

Apart the legal authorities, Scholz is also under pressure from the opposition Christian Democrats, whose recent motion to have the Bundestag set up a special investigatory committee on cum-ex was voted down by the three government parties (SPD, Greens, FDP). As a result, the CDU has taken the issue to the Constitutional Court, on the grounds that its rights have been grossly violated.

The mobilization of the Christian Democrats is all the more puzzling, as their own party chairman Friedrich Merz was the central player in the post-2009 restructuring of Westdeutsche Landesbank, which was also involved in cum-ex transactions. At the time, between 2010 and 2020, Merz held a leading position in the German operation of BlackRock, whose offices were raided by financial prosecutors for its role in the cum-ex scheme. Merz claims he knew nothing at the time.

The prospect of the leaders of both the SPD and the CDU being drawn into the scandal, implies a substantial destabilization of Germany, which may serve a scenario similar to the “clean hands” in Italy years ago.