Berlin dispatch Germany sells off the silver In desperate need of cash, German local authorities are using byzantine and dubious arrangements to lease their assets to America, writes John Hooper John Hooper Wednesday February 26, 2003 The Guardian At a time when US-German relations are at their lowest point since 1945, large chunks of prized German assets are quietly falling into the hands of Americans in a process that has raised questions about how much control is being surrendered. The key to the phenomenon is Germany's glacial economic growth since the mid-1990s. It has left many of its local authorities either broke or, at least, short of the funds they need to provide the kinds of services and facilities that Germans have come to expect. The answer? For many German local politicians, it lies in so-called lease-in- lease-out (Lilo) arrangements. Take the example of Bochum, a city in the Ruhr area of western Germany. It handed over its sewerage system to a US investor for 99 years in exchange for a payment of 500m euros made by way of a trust. It then leased back the network through a bank in return for a payment of only 480m euros, thereby making an instant profit of 20m euros. What American investors gets out of these often complex arrangements is the opportunity under US law to set foreign investments - though more apparent than real - against tax. According to a report this week in the daily Frankfurter Allgemeine Zeitung, between 150 and 200 "cross-border leasing" arrangements have been set up between US firms and German public authorities. Among the assets involved are the Cologne tram network, a concert hall in Dortmund and three water purification plants in Stuttgart. Frankfurter Allgemeine Zeitung estimated that around 40bn euros worth of German assets has been leased - and that the total is growing at an accelerating pace as economic reality bites into the accounts of one overstretched council after the next. It is reckoned that a quarter of all US-German Lilo transactions were done in 2002. Only recently have the deals begun to attract publicity and stir disquiet. At the end of last month, a bill was tabled in Bavaria that would outlaw cross-border leasing throughout the state. So far, three councils in different parts of Germany have been forced to pull out of planned Lilo deals by local resistance. One problem is that the terms of the contracts oblige the local authorities to keep open facilities that - it is argued - may not be required in the future. Another is that they require the councils to keep in good repair infrastructure which, if it developed serious problems, might otherwise be closed down. Der Spiegel magazine this week quoted experts as saying that, in some instances, the local authorities risked having to pay four times what they had earned from their Lilo deals. But the biggest risk, for many, is that Washington will one day find a way to ban the transactions altogether, and in so doing pitch both sides into a legal nightmare. One of many potential snags is created by the fact that whereas, under US law, the asset belongs to the trust, under German law, it remains the property of the original owner. Nevertheless, for as long as cross-border leasing remains legal, it is likely to prove irresistible for hard-pressed local politicians. In Berlin, for example, which owes almost 30bn euros, officials have been wracking their brains for years over how to raise the 130m euros needed for the renovation of Daniel Barenboim's opera house, the Staatsoper, on Unter den Linden. This week, it was reported that the councillor responsible for the arts was looking at a Lilo deal with the US. That would be doubly ironic because he is from the party which, in its earlier guise, ran communist East Germany.
Guardian Unlimited � Guardian Newspapers Limited 2003
-- Euphorian
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