The innovative idea came a decade ago. Germany was the sick man of Europe, trapped in a vicious circle of negligible growth and spiralling debt, and getting sicker by the day. The ruling Social Democratic Party (SPD) needed money: fast. After securing a narrow re-election in 2002, then finance minister Hans Eichel revealed that the tax take was down at least €30 billion on expectations. Unemployment, up to nearly four million or 10 per cent, was pushing up expenditure at an alarming rate.

Emergency budgets were unable to prevent borrowing rising by 64 per cent in 2002 to €34.6 billion and by one-fifth the next year to around €19 billion. By 2004 Berlin was on its way to its third subsequent budget deficit on the wrong side of the 3 per cent ceiling set down in the EU’s Stability and Growth Pact.

Brussels launched an excessive deficit procedure against Berlin, prompting Mr Eichel to sell off state holdings. To generate further cash, he presented a hit list of tax and investment subsidies.

But the subsidy cuts were blocked in the the upper house, controlled by the Christian Democratic Union (CDU). Mr Eichel asked investment bank advisors to comb Berlin's books for other options. That, he says now, was when they stumbled upon the future income from the privatisation of the post office.

As part of the privatisation and break-up of the state post office, finalised in 1995, the German state agreed to finance the majority of the legacy pension bill, projected at €550 billion by 2090. The new owners would be asked to contribute around €20 billion in the future. Mr Eichel’s advisers identified this future income was an asset that could be sold off now – or securitised – with the proceeds flowing into Berlin’s distressed budget.

Although, legally speaking, the transaction was completed by the agency charged with managing Bundespost pension fund, sources familiar with the deal say the initiative came from the finance ministry which, in turn, was steered by their banking advisers towards Ireland.

"The banks told us that this kind of business is usually carried out in Ireland," said one official involved in the transaction. "Perhaps their reason for saying so was the level of expertise there, perhaps tax played a role too. We didn't question it. We just went along with it."

Pressure from Brussels
Mr Eichel defends the practice today. Not only was Brussels breathing down his neck, he said, but if total state borrowing exceeded state investment it would, under German law, trigger a budgetary emergency. "Securitisation is a legitimate practice as long as the assets being used are serious," said Mr Eichel to The Irish Times. "What happened later was that banks were packaging rotten mortgages and securitising them."

He doesn’t remember all the details of the deal but recalls that banking advisers offered a choice of locating the special purpose vehicle to conduct the securitisation in either Ireland, the Netherlands or Luxembourg. “We could have done this in Germany but Ireland was a centre for securitisation and the tax situation was more favourable,” said Mr Eichel.

Mr Eichel’s successor in the finance ministry, Peer Steinbrück, continued the practice. In the end, the securitisation proceeds topped €15.5 billion, effectively replacing the state’s own contributions – and thus state spending – for two years.

But the plan was attacked on all sides when revealed in the Bundestag. In a sitting on October 27th, 2004, CDU politician Steffen Kampeter – a finance ministry state secretary in Berlin's outgoing government – attacked the proposal as "crazy ... plundering" to "plug budgetary holes".

SPD politicians hit back that the securitisation was a result of the CDU's Bundesrat blockade of subsidy cuts.

A group of young MPs including SPD MP Carsten Schneider, of late a vocal critic of Ireland's corporate tax rate, backed the proposal under protest. The securitisation of pensions, they wrote in a statement, "pushes current payment obligations into the future, where it will lead to higher burdens ... and thus at the cost of future generations".

The deal soon vanished from public view, though Germany’s federal court of auditors criticised the move in three annual reports. When German Postal Pensions Securitisation (GPPS) was set up in Dublin in April 2005, the Irish capital was well on its way to being an international hub for the thriving securitisation market, hosting conferences that brought together a who’s who of the industry.

At its launch in January 2007, the Irish Securitisation Forum said there was around €100 billion in asset-backed securities invested through Irish-based financial institutions.

Speaking at the ISF launch, former taoiseach Bertie Ahern promised close co-operation to "ensure the continued success of the industry" to "strengthen (Ireland's) competitive advantage".

Company records for German Postal Pensions Securitisation show a Merrion Square address of TMF Administration Services, an outsourcing company with 28 staff managing the affairs of 300 companies. The German pension notes were issued on the Irish Stock Exchange on June 23rd, 2005 in three tranches, with interest rates for investors varying between 2.75 and 3.75 per cent and the last notes maturing in January 2012. TMF declined to comment on its continued management of German Postal Pensions Securitisation.

A decade on . . .
And what do SPD politicians have to say a decade on? Mr Steinbrück declined a request for comment.

Finance spokesman Carsten Schneider remains critical both of Irish corporation tax and the securitisation of German pensions in Dublin. “Today such an operation would no longer be possible through the EU’s toughened-up stability pact and that’s a good thing,” he said. “If such tax advantages are offered they will be used. That applies also for the situation then.”

The lesson of the euro crisis, he added, was greater harmonisation of tax rates and the tax assessment base to prevent damaging tax competition in the future.

And how does Hans Eichel square his decade-old pension deal with SPD attacks on Ireland’s low corporate tax rate and financial regulation?

Mr Eichel says he “sees the point” of Irish people who might criticise his party for the policy of taking advantage of policies they simultaneously condemned.

“We are in different times now, the decision has to be seen in the context of the time,” he said. “This is what the banks were advising to do and I didn’t have any other way out.”