Bad banking news in Germany for Angela Merkel

AS FINANCIER, manager, architect and counsellor, Deutsche Bank has escorted the icons of German history - Bismarck and the Bundesbank, the Hohenzollerns, Hitler, and Helmut Kohl - along every stretch of a winding journey. Its fall from grace as a result of overleverage, misapplied ambition and others' desire to cut it down to size has brought Germany's premier bank to one of its lowest points since its establishment in 1870.

Deutsche's share price has gyrated in recent days as investors digest the impact of a fragile capital base and a heavy impending fine from the US Justice Department over mortgage securities mis-selling.

The affair - posing a possible dilemma for Chancellor Angela Merkel if the government is forced to consider some form of formally outlawed state aid - has strong implications for pan-European policies on banking and economics. Italian officials hope Deutsche's ills will deflect attention from their own problem banks. However, the Rome government knows that the bank's difficulties will not ma…