Doubts Over Merkel’s Euro Path Grow at Home

Angela Merkel has long been able to count on opposition support as she charts her euro-crisis course. But, as dissent grows within her own ranks, the Germany’s center-left is becoming uneasy, and a prominent economist is fomenting a revolt against her strategy. Influential German economist Hans-Werner Sinn has always been something of a fly in the soup of Chancellor Merkel’s efforts to save European common currency. As head of Munich-based Ifo Institute, Sinn has tirelessly warned, with eurozone central banks owing Bundesbank upwards of €500 billion ($627 billion), Germany is in a precarious situation. “We are trapped”, Sinn has been fond of pointing out. Still, with plenty of other economists eager to counter his doomsday prophecies, Sinn has been an easy fly to ignore. But his isolation may now be coming to an end. SPIEGEL has learned that Sinn, together with several other leading economists, is preparing a public appeal against resolutions agreed upon at most recent European Union summit. A draft of the appeal says Merkel was “forced into” agreement at meeting, held last Thursday and Friday in Brussels. In particular, Sinn and his allies are concerned about the trend toward the creation of a European banking union and allowing the euro bailout fund, European Stability Mechanism, to provide direct aid to struggling European banks instead of channeling money through governments and attaching strict austerity and reform requirements to it. Such a move, appeal states, means nothing less than the “collective accountability for the debts of banks in the euro system.” Because the sum of that debt is almost three times as high as euro-zone state debt, the draft continues, “it is virtually impossible to make taxpayers, pensioners and savers in the thus-far stable countries of Europe liable for that debt.” The summit made clear that EU is moving toward a banking union which, in exchange for emergency aid, would also include a European bank oversight authority and possible euro-zone-wide deposit guarantees. That, though, Sinn and his allies write, would inevitably result in bitter differences between financially solid countries in the north and nations in need to the south. “Conflict and discord with our neighbors is unavoidable”. “Our children and grandchildren will suffer”. Economist rebellion is telling. As long as Berlin was partnered with Paris in its efforts to introduce reforms to save the euro, Merkel could count on broad backing at home. Now that she appears to be losing ground to uprising led by Mario Monti and François Hollande, concerns about Germany’s ability to save euro on its own, voiced repeatedly by Angela Merkel herself recently, are rising. Germany’s center-left opposition, is demonstrating an increasing unwillingness to support Merkel’s strategy for plugging eurozone dike. That combined with the significant numbers of rebels within her own coalition, which pairs her conservatives with business-friendly Free Democrats, could spell danger to the chancellor in the near future (…..)



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2 Responses to Doubts Over Merkel’s Euro Path Grow at Home

  1. (…..) On Thursday, editorialists at two major German newspapers examine relations between Merkel and Monti as well as the scope of the North-South divide in Europe: The center-left Süddeutsche Zeitung writes: “Merkel was caught by surprise in Brussels by the decisiveness of an Italian-Spanish alliance that had been backed by France. It served to prove that, without partners, Germany is also weak.” “One shouldn’t draw comparison between the summit and the (1814-1815) Congress of Vienna (which redrew the European map). No borders have been moved, and no new powers have emerged. The balance of power has just shifted a little — particularly between France and Germany after Sarkozy was voted out of office — as commonly happens after several changes of government. For now, the Franco-German motor that many have relied on in the EU is missing. One possibility would be to put hope in Franco-Germany regularity — in other words, that Angela Merkel and Francois Hollande, out of necessity, will find their way to each other.” “Although it is likely they will do so, for some time now, Europe hasn’t been able to fill the hole created by the absence of Merkozy (Merkel and Sarkozy) with some type of Frangela (Merkel and Hollande). The EU is threatened by a corrosive north-south conflict that could eat away at everything achieved so far in European integration. One ingredient in it is an unshakable conviction among Germans, which has also been fostered by the government, that the crisis has been created solely by lazy southern Europeans who have lived beyond their means. The other ingredient is the view that the Germans, as the key beneficiaries of the euro, have been living at the expense of other countries.” “No bailout can save the euro if the EU can’t overcome this distrust. But, under these circumstances, the shifting in the balance of power in Brussels could provide a major opportunity. Merkel has shrunken back to human scale, which by itself could be helpful as a trust-building measure. On a personal level, she might resent Monti for using a few tricks during the summit; but, politically, she needs an alliance with him almost as much as she does with Hollande. That’s why Merkel’s trip to Rome … was so important. At the end of the day, this is a question of whether Europe can still hold together” (…..)

  2. (…..) The business daily Handelsblatt writes: “On the surface, it looks like German-Italian relations have taken a drubbing. After the Germans lost their Euro 2012 football match against Italy last week, some thought they lost another goal in Brussels. Some Germans believe Monti wants to get hold of their money. They also erroneously believe that Italy is already a recipient of funds from the European bailout programs.” “In fact, both countries and both leaders are a lot closer than people might think. Germany remains Italy’s most important trading partner. … Germany exports more goods to Italy than to China. It is in the interest of both countries for Italy to experience growth.” “Since he took office, Monti has pushed through more reforms than almost any of his predecessors. … It is understandable that the prime minister is angry that the financial markets are punishing Italy with (high) risk premiums on government bonds rather than rewarding those steps. He would prefer to spend his money on growth and debt reduction rather than on larger interest rates. That’s why he softened — or some say blackmailed — Merkel at the summit to allow the rescue fund to purchase government bonds from countries that have done their homework but are still being subjected to high risk premiums.” “What’s more, when it comes to budgetary discipline, Monti is closer to Merkel than Hollande is. The chancellor knows this and must support Italy as Germany’s most important partner. If Italy continues with its reforms, it is an argument for German voters to make certain concessions.” “Merkozy will not be transformed into a Merkonti. But a marriage of convenience would be the most prudent path”.


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