Germany

The German case illustrates the initially self-reinforcing but ultimately self-undermining effects of market-restraining arrangements. In Germany, a legal framework conducive to bids emerged almost fifty years later than in the UK, partly because, from the nineteenth century onward, German law-makers pursued a bank-based solution to principal–agent problems. Like market-enabling rules, these market-restraining arrangements nurtured their own support base, prominently including the banks. As elsewhere, incumbents also benefited from a divided opposition, and from political arrangements that assured their dominance. In addition, they had symbiotic allies, namely, large universal banks, who benefited from these market restraints for reasons of their own. German universal banks did not grow more numerous with time, but they gradually accumulated politically relevant resources and used these repeatedly to avert or water down market-enabling reforms. Reforms eventually took place nevertheless because the opposition to market restraints also grew stronger—rather than weaker—with time.