Wolf Richter www.testosteronepit.com
Rather than solving the Eurozone debt crisis once and for all, the EU summit last week gummed up the bailout process with controversy in the very country that everyone is counting on to save the Eurozone, Germany—but also elsewhere—and nothing has been resolved.
There is Greece, inexorably tottering towards its exit from the Eurozone. Once again, the despised Troika inspectors have arrived in Athens. Based on their findings, they’ll decide if Greece should get the next tranche of the bailout billions—default and/or conversion to the drachma being the alternatives.
Horst Reichenbach, the German head of the Troika inspectors, took one look at the numbers, and while he didn’t end up in the hospital nauseated and with knots in his gut—the fate that had befallen Finance Minister Vassilis Rapanos a couple of days after being appointed—he did see that Greeks have stopped paying their bills.
Which is logical. They’re hanging on to their euros under mattresses or in foreign accounts, assuming that they will soon be able to pay their bills with devalued drachmas. The deal of a lifetime. At least €6.5 billion is past due, owed to Greek industry, Reichenbach said. Everyone is doing it. Hospitals stopped paying for medication, individuals stopped paying for electricity, the government stopped paying for construction work.
“The patience of the public has been exhausted,” said Robert Fico, Prime Minister of Eurozone member Slovakia. His country would no longer be willing to help if recipients didn’t implement sufficient reforms. And the number of bailout candidates continues to grow: in addition to the five that have already requested aid—Greece, Portugal, Ireland, Spain, and Cyprus—Slovenia is now discussing it. And Italy is at the brink. Seven. Out of seventeen.
They’re all going to get bailed out by the temporary EFSF, which has a limit of €250 billion, and later by the permanent ESM, which has a limit of €700 billion. Of course, there is the old ESM that doesn’t exist yet, the one that was passed Friday by the German parliament after it had already been obviated by the new ESM that emerged from the EU summit, the one that everyone interpreted differently, the one that has run into a wall of opposition in Northern Europe. And it doesn’t exist either.
Finland and the Netherlands quickly expressed their opposition to an essential feature of the new ESM—buying sovereign bonds to force down yields and make borrowing cheaper. They could torpedo it; decisions must be made unanimously. But there would be a way around: if the ECB and the EU Commission decide that this is an emergency, only 85% of the votes, as determined by capital contributions, would be required. But no one can override Germany which contributed 27% of the capital.
And there was a veritable tsunami of actions at the German Constitutional Court. They came from all sides: from the left, from conservative Peter Gauweiler (CSU), and from the association More Democracy, which was joined by 12,000 citizens and by the Association of Tax Payers. They want a rush decision to stop President Joachim Gauck from signing the ESM and fiscal union laws until the court hands down its final decision.
According to the plaintiffs, the Bundestag, in passing the ESM, gave up its parliamentary “budget autonomy”—its rights to create and control the national budget. These rights would be transferred to organizations that were not democratically legitimized, thereby limiting the rights of voters to participate democratically in budget decisions. The fiscal union pact similarly violates German democratic fundamentals, they claim.
However, Justice Minister Sabine Leutheusser-Schnarrenberger, believed that the court wouldn’t stop the ESM and the fiscal union pact. In prior challenges, the justices reigned in certain planks of the law, she said, “but fundamentally they had no problem with the aid measures.”
And Chancellor Angela Merkel caught a broadside from her coalition partner. Horst Seehofer, chairman of the conservative CSU, lashed out at her concessions and threatened to let the coalition government collapse if further concessions were made. “My greatest fear is that the financial markets ask: can Germany support all that?” He was worried that the markets would attack Germany and put it in the same spot as Spain. He wouldn’t tolerate the transfer of any additional power to the “European monster state” and promised he’d turn the next elections into an election on Europe. “We will put this question to the people,” he said, which so far, amazingly, no one has done in Germany.
The onslaught of criticism put Merkel on the defensive about the summit decisions. The fundamental principles of German policies had been confirmed in Brussels, said Merkel’s spokesman Steffen Seibert, and the assertion that money would flow freely and without conditions was “completely wrong.”
After the EU summit, markets soared in Asia, Europe, the US, everywhere. The euro jumped. Yields on Spanish bonds fell to the lowest level of the week. A miracle had happened. Or had it? Read.... The Big Blink?
And to put some humor into that dogged Eurozone drama, here is “Merkel at Wimbledon 2012,” a funny video by down-under comedians Clarke & Dawe.