Germany Backtracks On Last Week's Summit

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Those curious why peripheral European bond yields have once again resumed their levitation creep higher, it is because not only did yesterday the key Merkel coalition partner, CSU, threaten to leave Germany's ruling party hanging "if further euro zone states secure bailouts, saying there were limits to how far his party was prepared to go", but today we have gotten even more furious backtracking on Mario Monti's history "success" less than a week earlier, after on one hand German opposition SPD has said it opposed Direct ESM aid to banks, but more importantly, the German Finance Ministry itself said that the entire bailout timeline is now in question, saying that it "remains unclear if Eurozone finance ministers will decide on Spain's request for banking sector aid at their next monthly meeting on July 9." The ministry also added that a decision could only come once the report on Spain by the troika - the European Commission, the ECB and the IMF - had been finalized. In other words, that much maligned Troika, which Monti had supposedly exorcised from intervening in the economies of Spain and Italy, will, after all be very much present, which also means that all the media spin about last week's "gamechanging" and unconditional bailout summit resolution, has been for nothing, in line with all the skeptical expectations.

From Market News:

Germany's largest opposition party, the center-left SPD, opposes the plan to allow Europe's permanent rescue fund, the European Stability Mechanism, to directly recapitalize banks, a senior lawmaker said in an interview published Wednesday.

 

The proposal allowing for direct capitalization of banks by the ESM was considered one of the key achievements of the EU leaders' summit in Brussels late last week. The leaders said, however, that direct capitalization would only be allowed once a new centralized European bank supervisor, headed by the European Central Bank, has been established.

 

"We strictly oppose enabling credit institutions to be financed directly from the rescue funds," Carsten Schneider, the SPD's parliamentary budget speaker, told German web media Spiegel Online.

 

If the planned aid for the Spanish financial sector were to flow directly from the bailout fund to the banks, then "it's hard for me to imagine that the SPD could approve this," Schneider said.

 

It is expected that the lower house of parliament, the Bundestag, will get to vote on the planned aid for Spain, which could be as much as E100 billion, at the end of this month. German Chancellor Angela Merkel's center-right CDU/CSU-FDP coalition government has a majority in the Bundestag.

Also from the same source, and more importantly:

Finance Ministry spokesman Martin Kotthaus said at a regular government press conference here that a decision could only come once the report on Spain by the troika - the European Commission, the ECB and the IMF - had been finalized.

 

"Up to now I've had no indication whether we will be able to decide already on July 9," Kotthaus said.

 

Government spokesman Georg Streiter said at the same press conference that Chancellor Angela Merkel and Horst Seehofer, the leader of her junior coalition partner CSU, were working well together. Reports that Seehofer had threatened to break up the coalition over future aid measures for ailing Eurozone states are wrong, he said.

 

Streiter also said the government expects a quick decision by the country's Constitutional Court on whether it will grant an injunction against the ratification of Europe's permanent bailout fund, the European Stability Mechanism.

 

Both houses of German parliament approved the ESM bill with a two-thirds majority on Friday. The court has announced it will conduct oral proceedings on the case July 10.

In other words, the European bailout meaahnism may or may not be activated at some point in the future. But one thing is certain: even combined, assuming they are fully funded, and with recent opposition by Finland, Holland and Slovakia they won't be, the ESM and EFSF, will certainly not have enough firepower to deal with both Spain and Italy, which means next on the regurgitated 2011 news agenda will be the same discussions that took place last year over levering up the EFSF, which like in 2011 will end up with the same sad conclusion. And during all this time, Europe will have finally run out of its last remaining assets, up to and including Spiderman towels.