More Speculation Of Merkel Coalition Mutiny Over Eurobonds
We are not sure just how many times the same piece of news can be recycled and spun off as new, but here goes. After we reported back in July that "Merkel faces a German revolt over the Greek bailout", a sentiment broadly indicative of what will happen today should the 12:30 pm EDT MerkOzy summit actually not disappoint markets (and it well), here is Ambrose Evans-Pritchard with the latest speculation on the mutiny that awaits Frau Merkel should she proceed with putting doomed common currency over the interests of her people. From the Telegraph: "The simmering revolt in the Bundestag makes it almost impossible for Mrs Merkel to offer real concessions at Tuesday's emergency summit with French president Nicolas Sarkozy. "We are categorical that the FDP-group will not vote for eurobonds. Everybody must understand that there is no working majority for this," said Frank Schäffler, the finance spokesman for the Free Democrats (FDP). Oliver Luksic, the FDP's Saarland chief, told Bild Zeitung the survival of Germany's coalition was now rests on the handling of this issue. "Eurobonds are a sweet poison that leads to more debt, rather than less. Should the government endorse a common European bond and with it take the final step towards a long-term debt union, the FDP should seriously ask whether the coalition has any future." And to think a few short days ago we were ridiculing Die Welt's media propaganda approach to make it seem that the Eurobonds were a done deal...
For those wondering why Euro spreads are surging wider today, as opposed to yesterday when the glaringly obviously was glaringly ignored, here's more:
Alexander Dobrindt, general-secretary of Bavaria's Social Christians (CSU) and a key Merkel ally, said his party has issued a "crystal clear 'No' to eurobonds".
Chancellor Merkel also faces mutinous grumbling among her own Christian Democrats (CDU), though the party's policy elite is willing to consider partial eurobonds up to the Maastricht limit of 60pc of GDP but only under stringent conditions.
It is clear the German public is in no mood for any such formula. A YouGov poll shows 59pc of Germans oppose all further bail-outs. The majority want to see Greece expelled from the euro and 44pc want Germany to withdraw from EMU.
"Given the rising euroscepticism in the population, it is too politically dangerous to toy with the explosive subject of eurobonds," said Hamburger Abendblatt.
Otmar Issing, the European Central Bank's former chief economist, told German TV a move to eurobonds would impoverish Germany and subvert the Bundestag. "That would be catastrophic. I cannot understand how any German politician agree to this," he said.
Germany's constitutional court has yet to rule on the legality of EMU's bail-out machinery and is likely to pay close attention to his warnings that the drift of EU policy is to concentrate budgetary powers in the hands of EU officials outside democratic control.
Professor Wilhelm Hankel from Frankfurt University said a eurobond is camouflage for fiscal union. "That is forbidden under EU law and the German constitution. Everybody in parliament realises we are very near to the Rubicon and that if they say yes to eurobonds they cannot stop the march to a transfer union."
Mrs Merkel's spokesman played down hopes of a breakthrough at Tuesday's meeting, denying reports that eurobonds are on the agenda. The meeting will focus on tougher rules for delinquents.
As reported previously Schauble is not a fan:
Wolfgang Schäuble, Germany's finance minister, is sticking to the script that the EU's accord in July provides all the tools needed to tackle the crisis. "I'm ruling out eurobonds for as long as member states pursue their own financial policies and we need differing interest rates as a way to provide incentives and sanctions, in order to enforce fiscal solidity. Without this solidity, the foundations for a common currency don't exist," he told Der Spiegel.
And so forth.
As we said before, nothing will come out of Germany until i) after Merkel is reelected, which means many long months of kicking the can down the street or ii) the Euro plummets as its death rattle begins. As a reminder eurobonds are the last option, and as such they will be reserved for a special place when all else fails. Anyone who thinks otherwise is due for a major disappointment.