German Opposition Threatens To Scuttle ESM, And Spanish Bailout, Ratification

Tyler Durden's picture

Gradually, the key open items from yesterday's Spanish bailout are getting some closure. First, we learned that Ireland, as speculated, will demand a comparable retroactive bailout renegotiation, an act which also puts the Greek elections a week from today in play. Then, we got definitive confirmation that the Spanish loan, coming at ~3% or half Spanish GGBs, is a priming loan, subordinating existing creditors. Finally, we learn that the ESM - the bailout mechanism at the heart of all current and future European bailout plans, and which still has not been ratified by Germany, is in danger of being scuttled by none other than the German opposition. The reason? According to a Reuters report, "A [Spiegel] report that German Chancellor Angela Merkel is not serious about implementing a European financial transaction tax threatens to undermine an initial deal struck last week with the opposition over the EU's planned fiscal pact... The Social Democrats (SPD) and Greens are insisting on a plan for a transaction tax and measures to boost growth."

It now appears, Merkel has been posturing on the issue which the opposition holds quite dear. However, she needs the opposition on her side to pass not only the fiscal pact but the ESM ratification, without which the entire Spanish bailout collapses: "She wants to push the pact through parliament in the next few weeks together with a bill on the new European Stability Mechanism (ESM) bailout fund which Spain may use, but needs the opposition to get the required two thirds majority." All this ignores what Die Welt reported earlier today, that "Spanish banks should come under special supervision" according to Volker Kauder, parliamentary leader of Merkel’s CDU, something which the Spain public would violently oppose. In other words: hold off on popping the Spanish bailout champagne...

Continuing with Reuters:

It would be a major embarrassment if Germany, which as euro zone paymaster dictates much of its crisis response, missed its deadline for ratification on July 1 when the ESM is due to take effect.


Finance Minister Wolfgang Schaeuble tried to pressure the SPD and Greens.


"It would be completely irresponsible not to ratify the fiscal treaty," said Schaueble on ARD television, adding he doubted a European financial transaction tax would be introduced in this legislative term which runs until next year's elections.


He said on Saturday that Spain's decision to request aid made it even more important to quickly ratify the fiscal pact and ESM. Its greater flexibility makes the ESM preferable to the European Financial Stability Facility (EFSF) to use for Spain.

The fact is that now that Germany has pre-committed to an ESM-funded rescue, the German opposition suddenly finds itself with absolutely all the leverage. It knows very well that without its support, the ESM, the Spanish Bailout, and implicitly, the EMU itself, crumbles. Can you spell nuisance value again?

In the meantime, it seems that even if the ESM vote passes, the European banking sector will be crippled for years to come, as the gating issue is now the same transaction tax that the US and UK had been rejecting for years:

The magazine report triggered an angry response from the SPD and Greens.


"Ronald Pofalla's comments are a blow to the fiscal pact talks," said senior SPD member Thomas Oppermann, adding they sowed doubts as to whether the coalition really wanted a deal.


"We need an irreversible commitment to introduce a financial transaction tax. There will be no formulaic compromises with the SPD," he said.

In essence, a lose-lose for Europe's insolvent banks, as being forced to pay even more tax will sap already negative profits even more.

But the bigger issue for now, of course, is whether the fiscal pact, and thus the ESM, can even get the required votes.

SPD leaders stressed at the weekend that its support for the fiscal pact was not yet a done deal.


"Agreement with the federal states is still needed and the government has delivered little on growth and fighting youth unemployment," SPD parliamentary party leader Frank-Walter Steinmeier told the Frankfurter Allgemeine Sonntagszeitung.


"There must be movement on this in the coming days."


On Monday, Schaeuble will discuss the fiscal pact with ministers from Germany's 16 federal states and parliamentary leaders from all parties will also hold talks.

At the end of the day, what really matters is popular opinion, and needless to say, it is not supportive of what just happened.

Highlighting the domestic pressure she is under to take a tough line with struggling euro zone members, an Emnid poll for Bild am Sonntag newspaper showed 66 percent of Germans are opposed to supporting Spanish banks with German money.

And of course, there is this from May 30:

Germany's Government Still Opposes Direct ESM Aid For Banks


Government spokesman Steffen Seibert said at a regular press conference here that the German rejection of the idea of any direct recapitalisation of banks by the ESM "is well known."


The treaty creating the ESM explicitly states that the fund can only lend to governments in return for promises of reforms. The German government has stressed on numerous occasions that it insists that this passage of the treaty is respected. The treaty has yet to be ratified by most governments including Germany.

Stated otherwise, an unwind of the existing bailout framework is only one general election away, when am upstart party takes advantage of the popular anger at the Spanish bank bailout, and proceeds to undo years of Merkelian pro-Euro policies.

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THX 1178's picture

Do IT. Smack this sucker down!

Fips_OnTheSpot's picture

Opposition will vote for ESM.. they're so "EUR(ope) is so the mighty thing we all waaaant". So they are just filling the political pot but dont hold breath for a Nay.

knukles's picture

Is there an echo somewhere?

Is it really deja vu all over again?

Have we been here before?

Any new ideas, anybody?


prains's picture

it's the speed bag effect 


it happens so fast and so oftens it's almost like the bag stays in one place

IMA5U's picture

Merkel gets speed bagged by Rajoy




.....up the p00per....

Manthong's picture

Isn't this about the spot where some Archduke catches it or something?

Ahmeexnal's picture

Germany will chip in.
You have to understand they are not bailing out the spanish sheeple.
Hell, they aren't even bailing out the spanish banking system.
They are bailing out the anglo-franco-german banks who are owed all that money by stupid spanish banks.

sitenine's picture

Silly me.  I always assumed bailout meant throwing the water overboard instead of back into the sinking ship.

TheFourthStooge-ing's picture

sitenine said:

Silly me.  I always assumed bailout meant throwing the water overboard instead of back into the sinking ship.

Plan B: drilling holes in the bottom of the sinking ship, Three Stooges style, to let the water out.

Amish Hacker's picture

I've been stuck in the revolving door for so long, I don't care if I end up inside or outside. Just stop revolving, already.

OttoMBMP's picture

Germany will pay, pay until the end.
Dear ZHers, do not get excited about German politicians blabla. This is only to give Germans the impression of a working democracy, with opposition and stuff. There will not be an upstart new anti-bailout party. Publicly funded violent groups in black (kind of modern SA, they call themselves Antifa) are keeping any really new political forth from taking shape. Streamlined media and an atmosphere of extreme political correctness together with official German self-hatred do the rest. German ex-EU commissioner Verheugen explained in TV that the whole EU organisation had only been necessary to protect Europe from Germany. So it was only natural that Germans had to pay in case of problems. Simply put: You are German and you don't want to pay for bailouts? - Do you want a new holocaust?! --- No, we don't want a new holocaust! We want to be nice now! So we will pay - until we are broke and the EUSSR dictatorship is irreversably established. It will not be nice, and it will be Germany's fault. What else?

veyron's picture

So i take it this is like the "Tea Party" or "Occupy Wall Street' or "Green Party" or "Libertarian Party"?

Freddie's picture

Germany needs a Geert Wilders/Nigel Farage to say enough.  Also something like the True Finns political party in Finland.


OttoMBMP's picture

Will not happen. (Indirectly) publicly funded violent Antifa groups and aggressive mainstream media fight down any new political movement which is not left wing.

DutchR's picture

Call Starfleet command?

malek's picture

Exactly. If anything is worth being named "posturing", it's the SPD's threat to vote against ratification of the ESM.

Buck Johnson's picture

Germany is going to say no, they have to say no at some point better to do it now instead of waiting for Spain to end up like Greece.

HungrySeagull's picture

That is what beer mugs are for.

Otherwise use clubs. But first hold a Beer Garden Festival.

dizzyfingers's picture

More specifics , please, about the interconnectedness of all of this.

Al Gorerhythm's picture

Specifically, the Opposition only need  place their feet up and let nature take its course.

Stackers's picture

This is getting tiresome ...........

q99x2's picture

It goes on forever but in time will play like an ochestra until it goes out with a bang. Greece was nothing to what is coming. Lies and rumors of lies and what those lies might mean if they weren't or were this that and the other because of a bailout from everyone but someone is holding out and on and on until the big poof. Could be years before a major false flag to let everyone know you better get your shit in order because war is coming.

That is how banksters do it. They think they can take over the world without war. They are wrong. 

HungrySeagull's picture

Bankers burn money.

Many bankers burning money makes for a good war worth fighting for.

Sudden Debt's picture

Tell me about it. My english is only this and that so I had to look up 4 words I didn't know...

GtownSLV's picture

How can the portion of a priming "cram down" loan that subordinates existing creditors not be considered a default and trigger CDS?

ghengis86's picture

Because you are not a bank. And it's the banks that decide what triggers a credit event, and only make such decisions that are in their favor.

knukles's picture

And if they decide there's a credit event, they have to write down the paper, take a charge, book a gain on the CDS and are the same one paying out the CDS.

Easier and more capital (as well as tax efficient) to just play dead.

slewie the pi-rat's picture

dead = tits up, BiCheZ!

any new ideas? 

  • raise the vig
  • lower the vig
  • all of the above
  • none of the above
  • the world is the shape of yer head, or soon will be
TheFourthStooge-ing's picture

gig the vig
(I wonder if it tastes like chicken)

HungrySeagull's picture

Fogetabutit. Spread that Vig see? Raise it some more.

sitenine's picture

The Social Democrats (SPD) and Greens are insisting on a plan for a transaction tax and measures to boost growth

Raise taxes and grow?  Seriously?  How?  These socialist fucks have no clue whatsoever.

knukles's picture


Some of my uber-liberal CA buds think that raising taxes and gubamint hiring folk and handouts is the only way to jobs, growth, yadda, yadda, yadda.  Oh, and BTW, they're the one and the same people who do not understand the math that they think they're self funding because they pay taxes.

Never-mind even trying to explain.

slewie the pi-rat's picture

it is simple relativity

this thought experiment should help:

>on the bullet train to nowhere

>nowhere comes up fast and often

welcome aboard!

Freddie's picture

Democracy "died" last Tuesday night in Wisconsin.  LOL!  Walker made the state of Wisc stop collecting union dues for the union.  After that happened - half of the union members quit and stopped paying the extortion to the union.

Coast Watcher's picture

Yeah, I read that and just shook my head. The economic ignorance is overwhelming.


malek's picture

Who said something about raising taxes, to the extent necessary?

It's all about taking on more debt.
A/k/a money printing, as additional debt taken on at the federal level, which cannot reasonably be ever paid back, results in exactly the same as outright money printing.

dizzyfingers's picture

"The Social Democrats (SPD) and Greens are insisting on a plan for a transaction tax and measures to boost growth. Raise taxes and grow? Seriously? How? These socialist fucks have no clue whatsoever."

Doing the same thing over and over, expecting a different result = insanity. The Left doesn't learn because it can't.

CURWAR2012's picture

Does Merkel have balls?


knukles's picture

Sarko's on the wall and Hollande's out being framed.

IMA5U's picture

She has Rajoy's furry ballz in her mouth



timbo_em's picture

Don't forget about the Finns. They are going to demand collateral causing some uncertainty when it comes to negative pledge clauses.

HungrySeagull's picture

The Russians will take care of the Finns when it's time.

RoadKill's picture


1st - let me admit that I went all in short last Friday.  So I'm prepared to be screwed tomorrow.  That's life.

BUT the one thing that makes me feel a bit better is that so many people think the Spanish Bank Bailout will engender a huge risk on day.  And when most people think one thing will happen - the opposite usually does.  This happens for a number of reasons - the primary one being that if everyone thinks something is going to happen - then they are already prepared for it.  Buy the rumor sell the news.  The other reason being - particullarly in these times of polotician BS spin - the details are usually not what the headlines seem.  So we have been told Spain has accepted a obligation free bailout, only to find out on Monday they were never offered one, and if they do get it they will subordinate all the public holders etc...

For example - most people (myself included) would have thought no one in their right mind would go into the weekend long given China economic data was destined to be a disaster (or they wouldn't have cut rates) and news out of Spain / Greece could be good or bad.  But I was wrong.  People bought the rumor.  Hopefully Monday they sell the news.

GernB's picture

I agree. People bought the rumors on friday spiking the markets. The markets could still go up, but it is more likely the rumor appeared more ideal than the news revealed and could result in a negative response. On top of that, its not clear that the downturn wasnt mostly about bad US economic data, and the last two day rally was a releif rally. Plus what will affect the markets Monday is Monday's news. Its really hard to predict these things.

Law97's picture

I went short Friday as well, at least it was at the close and the day's highs.  Anyway, Friday was destined to be a -200 day but the rumor of the Spanish bank bailout turned it around +300 points.  It was a kneejerk rally based on buying the rumor before all the details became known.  That should lead to buyers remorse once realization of the details, or lack thereof, set in by Monday.  So we may only get a temporary screwing.  A +100 bounce in the morning followed by a -200 fade into the close.  There are still a lot of bulls who feel trapped who will use this little bounce to exit.  As you point out RK, the macro picture is still crap and getting worse.

slaughterer's picture

We went short as well last minute of trading on Friday.  We see this as a long-term short which we will hold through the noise tomorrow and will add even more shorts on any pop with the full cooperation of our main brokerage.  

williambanzai7's picture

I don't think it matters if you go long or short, in a game that is rigged and openly manipulated by professed liars on a daily basis it is a tall order to wind up ahead. Being right about it has nothing to do with finding a way to cash in. You are better off at the slots.

Ghordius's picture

+1 Casinos are honest fleecers.