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Wednesday, 27 June 2012

No, no, no!! The German Iron Lady is not for turning


“Not as long as I live!” These words need no further explanation. This was the very comment of German chancellor Angela Merkel regarding the widely discussed Eurobonds as a possible solution for the current Euro-crisis.

Aside from the fact that this comment remarkably remembers of the former British Prime Minister Margaret Thatcher’s infamous speech during the 1980 Conservative Party Conference, Merkel’s statement is just more than only a general denial to Eurobonds.

As Merkel says, Eurobonds would be economically counterproductive and would have no beneficial effect to the crisis. Also, Merkel underlines the fact that Eurobonds would violate constitutional settings in the German Basic Law and in the legal framework of the European Union, specifically regarding Article 125 of the Treaty on the Functioning of the European Union (TFEU), which implies a non-redistribution of national debts. Eurobonds would undermine these provisions laid down in Art. 125 TFEU.

For Germany, Eurobonds would mean – in short – that Germany had to take over a big chunk of the overall European debts and especially those of the crisis countries. If you look at Germany’s overall debts of more than 2,1 trillion Euros (with a steadily increasing tendency), it seems understandable that the German government is not willing to take over more debts than they have already accumulating by themselves.

The main risk of Eurobonds is obvious: those countries with a difficult debt level (but not in crisis yet) would have to carry a much higher burden, which could lead them in the end into an even more serious budget crisis. In the case of some Spanish autonomous regions, their interest rates on debts would be even higher than the overall debt rates of Greece (although Spain’s overall debts are lower than Germany’s).

Merkel also states that there are no quick and simple solutions for the crisis, and clearly warns that the Eurobonds are being communicated and sold as a simple and “ideal” solution. In fact, although it appears to be a simple solution and presumably the most popular one (also because it is currently on vogue to bash Germany), the Eurobonds will most likely create additional and even more severe problems in the long-run and kick some more countries into a similar crisis like Greece, or push them into the ESM mechanism; and Italy is already the next on the line.

The EU summit is taking place these days, and it seems unlikely that the 27 EU Member States will agree on a consensus on the Eurobonds, not after Merkel’s indisputable comment. After Cyprus joining the ESM as the fifth member state after Ireland, Portugal, Greece and Spain, the EU decision makers – but in particular Germany, France, Italy, and Spain – will agree on a 130 billion Euro growth pact. After the summit, the German parliament and the German federal Council will have to decide on the fiscal pact on the ESM – and it appears that they will agree on it, because the main opposition party (SPD) more or less resigned from the Eurobond idea.

However, the reals decisions won’t be made before the European Football Championship will finally come to and end this weekend. Then our policy makers will have the bad luck to focus back on the important stuff again and cannot longer be excused for something “more important”. At least, the inner European “battle” continues back on the political level rather than on the football field, and the German Iron Lady will still not be for turning.

1 comment:

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