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.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
HungrySeagull's picture

And sometimes you smile at the Casino.

Make sure you look like you just lost the house containing your wife and kids as you shuffle to your car. That way no one marks you as worth robbing.

Mugatu's picture

Everyone thinking that Europe is saved (even temporarily) is missing one big fact:

Despite any and all future rescues, Europe, Asia, India and soon America are going into recession again.  This is all just a sideshow now.  The real game is where the economy is heading.  These are just symptoms of the problem.  I intend to find a nice spot to short here in the the next week and I am playing the real game.

optionwriter's picture

Help..where is the best place or platform to express the bankrupt world using cds?


Ookspay's picture

Ballot box or bullet box, depending upon your country of origin.

GernB's picture

Whats amazing is they apparently cant see the connection between a financial transaction tax and growth. Correct me if im wrong, but growth requires financial transactions and a tax on them would inhibit them (or drive them underground.) Inhibiting financial transactions will hurt growth and hurt employment, the two things the proponents of the tax want. It seems to me they want an irrevocable drag on growth. Perfect.

Omen IV's picture

in a hierarchy of evil  - it is the least evil compared to a income tax or VAT increase or property tax increase when the buildings are already underwater - it will do minimal damage to growth and if you combine with reduction in bank regulations as a trade with the banks,  it has a bonus  - the banks get new ways to steal everyone blind -  increasing gross profits and simultaneously lowering operating expenses from lower compliance costs, legal fees and political payoffs - government sanctioned fraud is high growth business

those of us sitting on the sidelines with cash want - chaos - that the banks will induce to the system and provide an opportunity of a lifetime as they break the bank one more time!

Marco's picture

Growth requires financial transactions ... playing leveraged ponzi derivative games requires orders of magnitude more financial transactions.

LeBalance's picture

Hi!  There's a bailout!  Whoopie.

Hi!  There's no bailout!  Whoopie.

Hi! Can you believe anything we say!  Whoopie.


Regardless of how this turns out, the credit market has just been dealt a death blow.

Who would loan any-thing?

Powerful weekend.  Massive.

Sudden Debt's picture

And yet a lot of people think financials will rally this week. But I don't know why they should...

LeBalance's picture

short term there may be some nonsense.

but everyone is on the dole now, whether it is called that or not.


what is the model for Italy?

what is the model for France?


there is no "juice."

RobotTrader's picture

The Germans will cave, eventually.


The political pressure will be too great.  Merkel will be facing a lynch mob or impeachment if the DAX takes out last week's lows.

It's that simple.

Failure is not an option.

sitenine's picture

Failure is not an option?  You think so?  Really?  What does success look like then, genius?  There is no option here.  There is no solution.  If failure is not an option, it is only because failure has already occurred!

carbonmutant's picture

@Robo Unfortunately you're probably right...

Bay of Pigs's picture

There are no "options". It's all a spectacular failure.

But just keep bashing gold you numbskull.

HungrySeagull's picture

The more that goldbar gets bashed on da ben, the easier to mallable that metal into a nice shape.

Dr.Engineer's picture

The Germans are not stupid or the other parties are not as smart.  Their 'cave' may well be a trojan horse, judo throw.  I don't believe that they will cave unless it is in their best interest.  Germans are not weak and Merkel has more balls than a football team.

Question:  What is it that the German powers want?

HungrySeagull's picture


Pass the Beer and fast Swine!

malek's picture

There is no impeachment process in the German constitution.

As Merkel is a chancellor, there is however a "Konstruktives Misstrauensvotum".

kraschenbern's picture

So...The ESM will come into effect when sovereign pledges totaling in excess of Euro 200B are honored; Euro 93B being pledged by the Spanish sovereign.  The ESM will then lend Euro 100B to Spanish banks (not the sovereign) and the sovereign will guarantee the loan.  Credit of the sovereign is never questioned.  Is that about it???  Why didn't our leaders think of this gambit years ago!?  Monetary easing cloaked in a word fog. 

WmMcK's picture

Can this gambit be declined?

asteroids's picture

In every case, Ireland, Greece, now Spain AND the US. The ultimate winner has been the bankers. The ultimate losers have been the citizens. In each case, the banks have been bailed out and the bad debt put on the back of citizens.  Only Iceland escaped.  Spain will provide an interesting twist.

carbonmutant's picture

Liquidity trumps Solvency in the Eurozone...

razorthin's picture

Noise followed by counter noise.  This pig's stuck.  Let's make sausage.

cherry picker's picture

They keep on talking about new taxes, raising them,you name it, without consulting with the people who have to pay for this and who have no say in the matter.

Work for cash, get out of the system.

Let them figure out what to do on their own.  They got into this mess, the people have enough problems without their governments adding more to the plate.

lotusblue's picture

It may be,when they realize the euro is irreversibly exploded/damaged,Fins,Germans and,all

the other nation states will decide infavor of bailouts- any credibility of the Euro will be lost and the whole euro experiment  will dissolve.

This certainly favors the Germans exports and relieves them any responsibility to the EU.

This seems the direction to me.

Nussi34's picture

Bomb the PIIGS!

sitenine's picture

? It's actually just PIGS - Iceland is fine, and bomb them?  You mean bomb them with fiat or explosive ordnance?  Personally, I don't see the difference anymore.

ATG's picture

The other I:

Ireland renegotiating their bailout to Spain's...

sitenine's picture

oh yeah, Ireland.  Maybe they will renegotiate with bombs?  I guess that's not entirely out of the realm of possibility.  Irish For The Win!


jhm's picture

The german "opposition" is a ridiculous bunch of utter morons, as are the ruling parties. They all would sell the whole country to the highest bidder in an instance to keep the €uro up and running, and anyone who does believe that Merkel is a pain in the backside has not yet understood how terrible the pain would become with the opposition in power. That said one can rest assured that these opposition bigmouths have no spine and in the end will always do whatever the puppet masters demand.

The whole fuzz is but the usual and mostly boring weekly storm in a teapot.


Besides, there is a European Football Championship going on, no one here in his right mind cares for politics or finances the next week, so whatever happens, and be it the end of the world, will find the german sheeple preoccupied with far more important stuff.

ATG's picture

Not to forget the French Open.

Can we really take this divide and conquer opposition/ruling party noise seriously with the EUD headed to 114?

Methinks not:

OttoMBMP's picture

I was not able to say it in better words. 100% signed.

TNTARG's picture

The endless banking bailouts until... It will stop.

Maybe Italy is gonna be the breaking point. There are banks not allowing people to take money from they bank accounts for "a month":


Atomizer's picture



Back in the day, my 7th grade prerequisite required reading the book ‘Lord of the Flies’.

Lord of the Flies 1960 

Shortly after, we saw a Hollywood show copied (Expedition Robinson version), the new US series was renamed Survivor. Boy did they bring in the ratings. 

Now we can watch the European Union have an unplanned plane crash. Watching this story will become pure irony. This time, the characters are bankers, policy writers and central planning hacks who will backstab anyone in their way.. bwhahahahaha!!! 

Council of Europe

European Council  

Shortly, you will begin to see how each EU community tribal member exercises its power and survival mode mechanisms.

stuman's picture

Why doesn't the Euro pack implement a mandatory "Balanced Budget Amendment" for all participating nations who request/require assistance?

Otherwise this will simply continue as a death spiral of economic woe for the whole Union.

For that matter the US needs to do the same... 

Moe Howard's picture

They are bailing out failed private banks, not the government. Malinvestment is being bailed out, with the taxpayers holding the bag.

To fix it you have to let the banks go under. Not have the government borrow money to give to a bankrupt bank.

Tirpitz's picture

They are bailing out failed private banks

That's what most people conveniently forget. Reckless speculators, which conduct their criminal business from dozens of offshored tax-havens to avoid paying their fair share of the upkeep of the state, and every few years they come gun in hand to grab some billions in bailout monies, tax-free.

We'd be far better off without such cancerous abominations.

Ghordius's picture

They have, and Ireland had a referendum on it. They voted yes.
The long term is being planned, now it's the question how to get there.

Tao 4 the Show's picture

The real story is that there is no solution and everyone remains in denial. Much current perceived wealth amounts to promises on the future. The struggle underway is to convert these promises into cash by certain financial parties, and to keep the game going by various power grabbers, politicians, and businesses.

The future is already overcommitted and there are no additional real lenders. Thus, the Germans remain in denial about not printing. All outcomes are ultimately some form of printing (e.g. unrealistic promises on the future), or debt collapse (loss of money for lenders). Unfortunately, lots of those lenders are Germans.

The current push is a hybrid combining a game of "who gets stuck with the hot potato" with "let's print money while pretending someone will pay it later".

djsmps's picture

Win Ben Bernankestein's Money

In 2008 the federal government made a terrible domestic policy mistake. While history showed that in bad times government must never allow a major bank to fail, the feds allowed Lehman Brothers, one of the five biggest banks in America, to fail. There was a lot of talk at the time about "moral hazard" and costs. But at the end of the day the whole credit system of the U.S. went into a sort of cardiac arrest that cost trillions over time. We're still feeling the effects time in a big way, in high unemployment, a collapsed housing market, and a sour, miserable mood of fear that has settled over the land.

 Now we're about to make another terrible mistake and hammer the economy yet again - SLAM it while it's on its knees.

Greece, far-away Greece, may have to default on its debt and leave the Eurozone very soon. Spain has close to 25% unemployment - that's a REAL depression. Italy is reeling. If these countries go into default, the effects will be extremely serious. Yes, Greece is a small nation, but many big European banks own large amounts of Greek debt, and our banks own large amounts of those banks. If there's a collapse in southern Europe, the U.S. banking system would be hit hard.

 That's exactly what we do NOT need at this point with the recovery wavering, and maybe another leg down to the already-brutal recession. Europe is a mess. Reluctantly the U.S. needs to get involved there in a leadership role to protect Americans from further blows to OUR economy. We can help. We still have immense influence at the International Monetary Fund; they could support Athens. Our Federal Reserve has unlimited money creation powers; it can help Greece.

 Yes, some will yell and moan about it, but it's to help Europe to help America - sort of like a Marshall Plan for our time.

 Let's get out ahead of this one while we still have time. This isn't to meddle in Europe's affairs; it's to help Americans get out of the fear and into the sunlight, finally!


Ropingdown's picture

You must be f'g kidding.

djsmps's picture

I have to wonder if it was satire. But I don't think so.

stuman's picture

I disagree. I think that nations or financial institutions that have mis-judged and over spent need to pay the piper. There shouldn't be anything considered "too big to fail" imo

All this talk of bail out this and that does nothing but allow the broken and abused system to keep on going. 

If these crooks have created so much debt that they can't pay, they need to FAIL  and re-build and re-structure and no continually look to tax payer bail outs that does nothing but increase our own burden and add to our own existing debt levels.

If it's going to collapse and burn...let it burn!

So we can finally be done with it and put in a system that works and be away from this fiat currency debt debacle for good!


Tirpitz's picture

But isn't that the true goal of the ruling bankster class:

does nothing but allow the broken and abused system to keep on going.

Angel Face's picture

It would appear Ben Stein has gone full retard.

booboo's picture

I read your line of shit to my grandchild, he said "he ain,t paying for that load of crap you are packing in your cheeks"

 he understands what your ilk are foisting on his generation, your type are always running up and down the street screaming, "for the children, do it for the children" Now that you have blown up the family budget with that line of crap you use the same old worn out pap except it's more steeped in bullshit than ever, DEFAULT is a fucking option and it's time you take a plate of that putrid shit you have been cooking on fraud street, shove down your own pie hole and sweat it out bitch.





treasurefish's picture

You sure are one stupid piece of shit, Liberal!!!

falak pema's picture

Whats the take on this article in BI concerning ZH's position that maintains that Rajoy's statement that "there are no strings attached" is not the case. They say ZH has sources that contradict the Spanish government's official position.

REPORT: A Major Spanish Government Bailout Claim Is Already Falling Apart - Business Insider

slingshot's picture

German banks are heavily invested in Spanish banks funding the real estate bubble there.   This bail out is just a German bank bail out although I do not have the numbers.

Alpacanio's picture

Hurry up and get this done now or we all die! Yeah, this sounds very familiar.. More bankers with gun to their heads saying, they will pull the trigger. German's will cave.

I have NO doubts, this will all collapse in weeks to a few months at most...