In one of the biggest corporate failures in German history, Philipp Holzmann AG, a prominent construction firm that built the Reichstag and other illustrious buildings, filed for bankruptcy today after bankers failed to approve a multibillion-dollar rescue plan.
The demise of Holzmann, which for 150 years has been considered one of the prime symbols of Germany's industrial prowess, shocked the nation and forced Chancellor Gerhard Schroeder to intervene to prevent the potential loss of more than 60,000 jobs.
Schroeder vowed to meet with Holzmann's creditors Wednesday in a last-ditch bid to salvage the company. With some 4 million people out of work, or nearly 11 percent of the labor force, the chancellor said his government was prepared "to use a lot of imagination" to protect as many jobs as possible.
"This company still has substance," Schroeder said. "It does not have to go bust."
In the meantime, Holzmann's directors said they would try to sustain operations at 1,200 German construction sites despite revelations that the firm faced real estate losses of $1.3 billion, in addition to $5 billion in debts, because of "massive breaches of duty" by former executives.
As news of Holzmann's collapse spread, workers belonging to construction unions demonstrated in Frankfurt and Berlin against shutting down the firm. In addition to Holzmann's 28,000 workers, there are tens of thousands of other jobs at stake among the firm's suppliers.
The workers urged the government to bail out the company, but Schroeder's budget is already stretched to the limit by $100 billion in annual costs to subsidize the formerly communist east and another $200 billion in corporate welfare to support dying industries like steel, shipbuilding and coal mining.
Besides having a dramatic impact on Germany's unemployment, Holzmann's collapse may exacerbate a serious crisis of confidence afflicting the world's third-largest economy, which suffers from huge debt and high wage costs that are hobbling Germany's ability to cope with global competitive challenges.
Investors have been fleeing Germany because they are concerned that a fatal combination of some of the world's highest taxes and most expensive labor costs and over-regulation hamper their ability to make profits and create new jobs. Many companies now find they can supply the affluent German market by producing in Poland, Hungary or the Czech Republic, where wages are about one-fifth those in Germany.
Faced with those pressures, the consensus among banks, business and government that nurtured the postwar German recovery has started to split. Deutsche Bank, Holzmann's largest creditor and second-largest shareholder, balked at carrying the brunt of the rescue package and accused other banks of not sharing the burden.
Carl von Boehm-Bezing, Holzmann's board chairman, said Deutsche Bank appeared willing to provide the company with about half of the money required for its restructuring but that Commerzbank, the nation's second-largest financial institution after Deutsche, failed to show "enough flexibility."
Commerzbank spokesman Peter Pietsch angrily denied that the bank was responsible for the breakdown and blamed Deutsche Bank for refusing to give other creditors enough information about Holzmann's situation.
"We were definitely ready to help out with Holzmann if the restructuring had been in a plausible framework," Pietsch said. "Deutsche Bank must ask itself whether it did all it could to rescue the construction group."
Deutsche Bank, which hopes to become a dominant global banking power through its $10 billion takeover of Bankers Trust, was humiliated when Frankfurt construction mogul Jurgen Schneider filed for bankruptcy in 1994, owing billions of dollars to the bank and other creditors.
Four managers subsequently resigned over the scandal, which also drove bank chairman Hilmar Kopper into early retirement after he angered shareholders by dismissing the lost loans as "peanuts."
CAPTION: Employees of the German construction firm Philipp Holzmann AG block the entrance of the Commerzbank, one of the company's major creditors, during a rally in Frankfurt.