Michael Berendt's blog

People may have questioned Chancellor Angela Merkel’s commitment to the European Union over recent years, but there is no denying the pivotal role which she is playing in defence of the euro. What a desperate battle she has to fight! The trouble is that her own battalions are deeply sceptical of her campaign.

The misgivings in Germany over any bail-out of Greece, Portugal or Italy already run deep (Ireland is making tangible progress in tackling the crisis), but Friday’s resignation of German ECB board member Juergen Stark has given them greater force. Everyone is saying that his departure stems directly from his objection to the ECB purchase of bonds from the weaker economies in order to safeguard their banks.

Stark couldn’t possibly comment, but his decision has much the same flavour as the resignation of Axel Weber as president of the Bundesbank earlier this year and the subsequent appointment of Italy’s Mario Draghi as head of the ECB from November. What’s more, Stark is a member of Merkel’s own party, the CDU.

The German constitutional court gave Mrs Merkel some comfort early last week, when it pronounced as legal the measures which have so far been taken to support the euro. More threatening was the Court’s insistence that further measures must be subject to a formal vote in the Bundestag. That could potentially scupper the introduction of yet further measures to support the weaker eurozone member states, in particular the expansion of the European Financial Stability Facility to €440 billion, of which €211 billion would be committed by Germany. It almost certainly rules out the idea of eurozone bonds, a widely canvassed option for resolving the crisis, but one which would imply even greater German burden-sharing.

The future of Germany’s coalition government is now at risk of collapse if Merkel’s own party has too many defections over support for the euro, maybe even in advance of the 2013 elections.

Merkel’s approach is to stress the need for long-term measures, and she is adamant that treaty changes are needed to make the stability and growth pact legally binding and defensible in the European Court of Justice – yet another reminder that it was Germany and France which drove coach and horses through the pact in 2003. The Chancellor blames that failure on the Socialists, as she does the decision to allow Greece to join the euro in 2001before the country was ready. There is no way to avoid modifications to the treaty, she says, if the euro is to survive.

Negotiating proposals for treaty change will be a major preoccupation for eurozone ministers in the coming months, but it will be a difficult process, coming to fruition in 2013 or later, which is hardly the short-term solution that the markets are seeking.

British euro-sceptics, especially Conservative members of parliament, see any revision as the perfect opportunity to argue for a watering-down of the UK’s commitments to Europe. It would be sad irony if the creation of the euro, such a powerful force for integration, should evolve into a weapon of disintegration.

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  1. These martial allusions to “Germany on the march” are getting stale. Even staler that they were 30 years ago. Germany can not affort to extend emergency lending forever, and the fixation on the German government as the catalyst for people’s attention is getting idiotic.

    Greece (and possibly other member states) will have to endure default. Hopefully it will be orderly. In jeden fall it will cost one and all a great deal, most of which will fall on the FANGs.

    Actually, that’s “ANGs”, as France will likely have to recoil to maintain the solvency of her banks.

    Here’s what’s noticable about the whole matter: Next year, France’s debt service obligations will be equal to half of her tax revenues. Anyone who believes that Government spending can remain as it is, and that the entire shortfall can be made up in taxes has to imagine all taxation going up by more than a third. It’s functionally impossible, even if the entire wealth of top 10% of all earners and wealth-holders of appropriated in full.

    Imagine too, an economy trying to fuction at all when taxation is an additional 1/3 over half of the GDP. That means 3 people pulling the wagon for every 7 people riding. Since this is precisely what brought Greece to its present position, and worse still, forced it to indulge in bizarre and exotic revenue vehicles for years, states on the scale of France and the US can expect the same results. The difference is that even China isn’t big enough to facilitate an orderly collapse of that scale.

    Have a nice day.

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