Up for re-election, Chancellor Angela Merkel, right, has been cautious with economic reforms.

By CARTER DOUGHERTY


FRANKFURT - Farhad Farassat, a Munich-based entrepreneur, blames fickle banks for his difficulty getting a loan. But, like many Germans, his problem may be largely political.

Mr. Farassat tried to borrow 900,000 euros, or about $1.25 million, to keep his computer chip manufacturer, based just outside Munich, afloat. But last April, the bank he has been using for 17 years balked.

“The managers hid from us, Mr. Farassat said. When he finally spoke to them they told him “it just would not work.

Germany, the largest economy in Europe, is showing signs of being an unfortunate example of what happens when a country does not move quickly to deal with an embattled banking system as lending dries up. And many experts blame the German government’s refusal to force a restructuring onto its financial system.

With national elections nearing, Chancellor Angela Merkel has tiptoed around the hard choices needed to recapitalize and restructure the banking system, experts and analysts said. The result, they fear, will be a longer recession in Germany, where the economy is expected to shrink by at least 6 percent this year, and Germany’s export-driven economy may lose out when the rest of the world gets back to business.

“The problem is going to come when we want to get out of the crisis, said Klaus Zimmermann, head of the German Institute for Economic Research in Berlin. “The banking sector has to be there and be healthy. And the banks won’t be able to participate in the process.

Germany lies at the heart of a Europe that generally has been slower to clean up its financial system than the United States, according to the International Monetary Fund. In its recent Global Financial Stability report, the I.M.F. pointed out that capital ratios among banks in the 16-nation euro area were 7.3 percent at the end of 2008, compared with 10.4 percent in the United States.

“As a whole Europe is simply not tackling the banking problem, said Simon Tilford, chief economist at the Center for European Reform in London and a Germany expert. “Germany is the most worrisome case, and denial of problems has been more pronounced there than elsewhere.

Banks have fought the notion of a widespread credit crisis by pointing to data showing continued growth in lending in Germany. Data from the Bundesbank, Germany’s central bank, for example, shows that the volume of new short-term loans - those extended for up to a year - grew by 15.9 percent in May compared with the same month last year.

But lenders have pulled back sharply on larger loans at longer maturities, the statistics show. In May, the volume of new loans for up to five years fell 32.7 percent compared with the same month in 2008.

That breeds immense frustration among German companies. After the free fall in the world economy early this year, many want to plan for the upswing, but feel starved of credit.

“It’s pretty clear that the banks are turning the screws, said Hanns- Peter Ohl, a director of VDMA, an association of machine-tool makers in Bavaria.

Lars Hofer, a spokesman for the German Association of Banks, did not dispute that longer-term loans were harder to grant, but blamed it on the general financial turbulence.

“There are fewer syndicates for loans, and a weak long-term financing system, he said.

Unlike the United States, Britain and France, Germany made government recapitalization voluntary last fall; most private sector banks declined to take part.

“What the government has done was much delayed, said Gernot Nerb, an economist at the Ifo Institute in Munich. “And what they agreed on was the least-common denominator of the various interests at hand.

In her bid to win re-election in the September 27 election, Chancellor Merkel, a conservative, is angling to ditch her unwieldy coalition with the leftist Social Democrats in favor of the centrist Free Democrats. That means balancing fixes for the economic crisis with Germans’ well-known aversion to debt.

The result has been a tendency to emphasize the foreign nature of the crisis, despite Germany’s own contribution to it. “It makes political sense for Merkel to play down the structural problems in Germany and play up the crisis as an Anglo-Saxon creation, Mr. Tilford said.