The editorial of the New York Times observes that Germany, the largest economy in Europe, is demonstrating as to what happens when a country does not react in a timely manner to deal with a beleaguered banking system as lending is drying up. The Federal Financial Supervisory Authority (Bafin) also confirms that the financial crisis has hit the German banks harder than expected and requires a boost to sustain in the long-term. Many experts are particularly blaming the German government's laxity in forcing a restructuring of its financial and banking systems. Since long, the authorities have been concerned that the Germany is the most overbanked country of Europe. In fact, as the US subprime crisis began hitting the German banks, they were mulling over consolidating the German banking system. Though a few private sector banks have merged, not much has happened in that direction. Subsequently, the subprime effects have dented the banking system, virtually putting a brake to long-term lending.

The upshot is that the German corporates, who were planning for the upswing after the free fall of the world economy this year, are starved of credit. If the status quo continues, analysts fear about a longer recession in Germany and expect the economy to shrink by at least 6% this year. Also, they lament that the once export-driven economy may lose out when the rest of the world gets back to business. Therefore, analysts say that Germany has been notably slow in dealing with its ailing banking system, while the US, UK and other developed countries have reacted swiftly to contain their banking crises and invigorate lending.

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