The Bavarian Connection

Huge loans, massive debt and cozy government connections.

Leo Kirch had it all, before debt broke his media empire, and now his pals in Bavaria's state government may pay for it.

Chancellor Gerhard Schröder made it clear after Kirch filed for insolvency Monday that the main opposition candidate in this year's parliamentary elections, Bavarian state premier Edmund Stoiber, will have to pay in political capital.

But Stoiber's allies were determined to distance their candidate from Kirch's woes, while directing blame for Germany's economic problems on the Chancellor himself.

Blame game

Aiming to pin the fault for the media group’s collapse on his rival, Schröder said initial information showed that credit extended to Kirch from the Bavarian state bank Bayern LB was improperly secured.

"This is not exactly a sign of economic policy competence – quite the opposite," he told Reuters. "The Bavarian state government and at its head the Bavarian premier are trying to avoid taking any kind of responsibility."

Stoiber’s allies however drew a line between the interests of the Bavarian state and the responsibilities of a private businessman succumbing to debt.

Angela Merkel, leader of the Christian Democrats (CDU), the national sister party to Stoiber's Christian Social Union (CSU), said Schröder's "polemic" showed he was nervous.

Kirch’s failure also threatened to fall to the Chancellor. It is merely the latest in a string of high-profile insolvency cases that have rattled Germans’ economic confidence under Schröder, with unemployment over 10 percent.

Schröder said that the state may intervene, since with some 10,000 at risk the economic fallout of Kirch's collapse could be very serious.

Regionalist attack

The Bavarian premier has led public opinion polls in the early campaign preceding September 22 elections, running on the economic success of wealthy, conservative Bavaria, vowing to bring similar success to all Germany.

But since Kirch filed for insolvency, Schröder has sought swiftly to change public perceptions of Bavaria’s wealth, casting it as tenuous, the spoiling fruits of irresponsible ties between business magnates and state leaders.

It is a message that could play well in other parts of Germany, where many voters see Bavaria as a rival region whose example is inapplicable to themselves.

But the sharpest point in Schröder's attack is not regionalism. The specific claim that Bayern LB's 1.9 billion euros in credits to Kirch were improperly secured suggests, albeit by innuendo, that state leaders were too cozy with Kirch.

If hints of unethical connections between the Bavarian elite are ever backed up by factual evidence, it could spell real trouble for Stoiber.