German banks warn Berlin that red tape may curb spending plans

By Tom Sims

FRANKFURT (Reuters) -Germany's top bankers on Thursday warned Berlin that giant spending plans for infrastructure and defence need to be accompanied by overhauls to cut red tape to get their maximum punch.

This week, the parties hoping to form Germany's next government agreed to create a 500-billion-euro infrastructure fund and overhaul borrowing rules, a tectonic spending shift that fuelled hopes of reviving Europe's largest economy.

The optimism has sent German bank shares soaring, with Deutsche Bank up 15% and Commerzbank up 13% over the past two days.

But leading bankers are concerned that the measures could lose their oomph and prove short-lived if the government doesn't also tackle bureaucracy, long one of their main gripes. 

"These measures are only justifiable if they are accompanied by far-reaching structural reforms. Otherwise it will remain an expensive flash in the pan," said Heiner Herkenhoff, the head of the Association of German Banks, in a statement to Reuters.

Bettina Orlopp, the CEO of Commerzbank, said the spending plans promise a short-term lift to the economy but she also called for "improving the conditions for investment", such as reducing red tape and harmonising financial markets across the European Union.

Berlin's new spending plans "alone will not be enough to meet pent-up demand," she said in an emailed statement.

In recent years, a stagnant German economy has weighed on the nation's banks, keeping a lid on investment lending and contributing to a property slump and bad loans.

Deutsche Bank's own economists are looking at revising up their German growth forecasts.

"Everything you thought you knew about Germany's economic prospects three months ago, or even three weeks ago, should be ripped up," they said in a report this week.

Christian Ricken, the CEO of the German property lender Aareal, said the spending plans could improve financial conditions for property developers to build apartments to confront the nation's housing shortage.

"But we also need simplifications in terms of regulations and laws so that we can build sensibly again," he said.

(Reporting by Tom Sims, editing by Miranda Murray and Louise Heavens)