Philipp Holzmann, the 150-year-old German construction giant, went bust yesterday in the country's biggest company failure, a move that will send shockwaves through Germany's cosy corporate culture.
The group had been saved from collapse in 1999 after the personal intervention of the German Chancellor, Gerhard Schröder, who came up with a €2.2bn (£1.4bn) state aid package. That looks much less likely this time, not only because German industry has moved on but the European Commission would come down heavily on any bail-out.
Holzmann, which has twice helped build the country's Reichstag or parliament, employs 25,000 workers and many thousands of jobs at suppliers are dependent on it.
"On March 21 Philipp Holzmann AG will file a motion for initiating insolvency proceedings because of inability to pay," the company said in a statement.
The company's failure to agree terms with its banks is bad news for Mr Schröder who is facing an election in September and he is already behind in the polls, as German unemployment reaches 4.3 million.
"I would have wished for a different outcome from the bank talks," Mr Schröder said. He added that he was hoping for a compromise deal.
Holzmann yesterday filed for insolvency after it failed to convince German banks Dresdner, Commerzbank and HVB to back a rescue plan sponsored by Deutsche Bank, the company's biggest shareholder.
"Deutsche Bank emphatically promoted a clearly structured final plan, which three banks recently refused," Deutsche said.
Professor Kai Konrad, of Berlin's Freie University, said: "It is in Germany's interest that Holzmann is bankrupt. It is obviously an inefficient company ... people are beginning to understand this as a necessary process."
Holzmann's fate will cast further gloom over Kirch, the media group which is also teetering on the brink of failure and is trying to convince its banks to restructure its €6bn debts.
Edward Bannerman, at the Centre for European Reform, said: "Germany's stakeholder capitalism is being replaced by Anglo-Saxon shareholder capitalism but only slowly."
In Germany, banks often take equity stakes in companies and sit on the supervisory boards of the businesses they lend to.
With a single interest rate set for those countries in the eurozone and government's ability to run up big budget deficits constrained by the European Union, there are limited options that would allow the German company to kick start growth in the economy. Structural reform, seen as the solution by pro-market economists, is the other option but, Mr Bannerman said, it was being resisted by the Schröder government.
Germany's construction sector was booming in the early 1990s on the back of German unification but it over-expanded and has been in recession since the mid-1990s. More recently, the entire German economy has stopped growing. Last year, Holzmann made a loss of €237m.Reuse content