More Speculation Of Merkel Coalition Mutiny Over Eurobonds

Tyler Durden's picture

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.

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Cult_of_Reason's picture

BERLIN—Germany and France are being forced to reconsider an unpalatable idea as the euro zone's debt crisis spreads to its core economies: Making the currency bloc as a whole responsible for its member nations' debts.

The idea of collective liability, often referred to as "eurobonds," has been floated various times since last year. Conservative politicians in Germany and other northern European countries have previously dismissed the proposal as a violation of the European ideal, in which countries cooperate but remain responsible for their own fiscal affairs.

But turmoil in recent weeks, including capital flight from Italian bonds and French bank stocks, has forced the naysayers to debate the proposal seriously for the first time. Officials in Germany and France admit they're running out of options to deal with the crisis. The strategy until now—consisting of national budget cuts and European rescue loans—hasn't restored creditors' trust in the euro zone...

...On Sunday, one of Germany's leading newspapers, Die Welt—whose center-right leanings put it close to the government's thinking—devoted its front page to explaining why eurobonds are a potential last-ditch measure to prevent the euro zone from collapsing. German media have seized on the issue, forcing politicians of all stripes to declare a position.

The German exporters' association on Monday called on the government to do whatever it takes to protect the euro, saying the U.S.'s credit downgrade has heightened fears that the debt crisis could hit any government. "All alternatives to eurobonds will cost us even more money in the end," the influential business lobby said...

...But the left-leaning opposition in both Germany and France broadly supports eurobonds. And the escalating crisis has repeatedly forced Ms. Merkel to cross previously announced red lines in order to save the European project.

Breaking up the euro would be ruinously expensive for Germany, Berlin officials say, as the resulting exchange-rate swings within Europe would ravage Germany's exports and banking sector...

Cult_of_Reason's picture

Pressure on Frau Merkel:

1. Powerful German banking lobby supports Eurobonds

2. Merkel’s opposition parties (on the left) support Eurobonds

3. Powerful German business lobby supports Eurobonds

4. France (Sarkozy) now after bear raids on French banks supports Eurobonds

5. Obama Administration, Fed, US Treasury, IMF, World Bank support Eurobonds

6. ECB cannot continue buying Italian and Spanish bonds for too long and will support Eurobonds

7. China supports Eurobonds and promised to buy the bonds

8. Etc.

M.B. Drapier's picture

Yes: as long as the bulk of deputies from both the CDU and SPD can be relied on to vote for Eurobonds it's hard to see how domestic opposition is going to stop Merkel, isn't it?

Cult_of_Reason's picture

The majority was against TARP in the US, but eventually they passed it.

Youri Carma's picture

You make some very good points here but just for the balance: Dutch coalition partner opposes eurozone bonds

Not that the Dutch have to say much in the world of today.

See what happens. My bet is that the will ram those Eurobonds trough and ignore the populus as usual.

Dick Darlington's picture

Finland's Grand Committee decided this summer that Eurobonds will not be accepted. Ever. We'll see how they live up to their promises.

Cult_of_Reason's picture

According to CNBC in Europe, a Dutch minister has already changed his mind and made a public statement today, "it is worth considering the Eurobonds" (he used to be strongly against the Eurobonds before he received a couple of calls from "important" people).

Do not underestimate the power of well funded lobbies and well connected EU plutocrats/financiers to make any politician/bureaucrat to change his/her mind.

TruthInSunshine's picture

The EU & James Brown are DEAD, bitchez.

All the EU does is TALK TALK.

Snidley Whipsnae's picture

Schauble is the only clear thinker in the bunch... The rest are a bunch of career political fools that would see their country in ruins before doing the right thing for their own people... Just like American pols...

"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."

Gunther's picture

A day before the Mercozy meeting the spokesman of the German government stated that Eurobonds will not be discussed.

That was in yesterdays news in German quality Radio (Deutschlandfunk.)

To me that looks like someone in the Government puts borders on Merkels ability to write cheques.

Mercury's picture

We're sort of at the point where Fannie/Freddie's implied guarantee became an explicit guarantee (another terrible idea in the history of socializing the downside of credit risk).

Eurobonds may be the last option when everything else fails but they will eventually be deployed because everything else will fail and less pain today will gladly be traded for unbearable pain tomorrow by central planners and Eurocrats.  If you're a member of Club Med you are now incentivized to look busy...but essentially do nothing to put your own house in order while you wait for the Eurobond to become reality. 

Short sighted core-Euro banks and businesses will also push for it as they freak out about future currency swings while real, well-reasoned opposition to the Eurobond on the (especially Germen) home front  will be steamrolled by an atmosphere of DEFCON-5 crisis even though they will be proven right in the end.  A short-lived and ultimately disastrous Eurobond will almost certainly come to pass.


Snidley Whipsnae's picture

If I were Merkle I would get as close to Russia as white on rice... wide open bilateral trade agreements, discussion of a new DMark for Ruble swaps, dropping of all excise, etc, and tell the PIIGS to take a flying fling.

Germany has proven that they can compete head up with the Chinese... something no other country in the world has done.

The PIIGS were only good trade partners as long as they were paying for their imports. Germany does not need to subsidize the rest of Europe.

Germany made an attempt to stabilize the region and prevent future conflicts by entering into a common currency with the PIIGS. The PIIGS have failed to live up to their end of the bargain. It's time for Germany to cut their losses... 

Mercury's picture

That sounds like the right thing to do and it's a possibility but I think the odds are against it...although I admit I don't have a very good grip on Merkle or German politics here.  I mean, look at what Switzerland is doing vs. what they should be doing vis-a-vis their currency. Switzerland.

Gunther's picture

To some extent that is happening, there is a Natgas pipeline through international waters from Russia to Germany. This way nobody else can turn the tap off. The deal was signed before Merkel and the pipeline gets built now. The German finance minister says Eurobonds only against loss of sovereignity. I do not think the other countries will value German support that high.

f16hoser's picture

Uncle Benny Funded Eurobonds! Compliments of the US Taxpayer! What's the problem?

gwar5's picture

So, will they or wan't they do the bonds? 

I thought the Germans were already sufficiently aware to reject this backstopping of Eurobonds.

We'll see.

lolmao500's picture

If she does backstab the german people, she need to be strung up like the commie she is. (which she is, she was high in the east german government)

sunnydays's picture

She works for the banks and not the people, as she has already shown.  The people have had enough, the fact it is even being considered is political suicide for her.  I can't imagine she will be reelected as it is. 

BandGap's picture

Help me out here, who is going to buy these things? The ECB?

This is nuts.

Mercury's picture

By some important metrics (like fiscal deficit & debt/GDP) it would be a sexier credit than USTs actually.

sulfur's picture

World Bonds or Universe Bonds would be the best solution.

Allthough i seriously doubt Capt. Kirk has no softer toilet paper on board.

SheepDog-One's picture

What we need is just more shit to sell! Got to make attractive rates for space aliens, then maybe they wont invade us soon as Krugman thinks will happen, but instead buy our paper.

eurusdog's picture

I don't know if alien bonds exsist? I googled "alien bonds" and all I got were links to bails bonds for illegal aliens.

oogs66's picture

Eurobonds just cannot get approved.  It would be total capitulation for Germany and France and real risk that they get dragged into the abyss

Jim in MN's picture

Oooh, a keeper:

"Eurobonds are a sweet poison that leads to more debt, rather than less."

--Oliver Luksic, the FDP's Saarland chief, in Bild Zeitung

SheepDog-One's picture

Lets see....the Euro is a flop failed centrally planned currency that was doomed from the start because by design the most productive have to take up the slack from the least productive. Gee it seems no matter how they repackage simple socialism it always fails, so now lets repackage the Eurozone and sell bonds on the whole mess! 

What a stupid world.

shortus cynicus's picture

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.

You see, democracy is a problem!


They all against ad wait for new bribes and gifts from financial "intrustry".

Exactly like green movements waiting for donations from big corporations.

Ricky Bobby's picture

Exactly, that is why the world loves China so much. They have solved the "democracy" problem. "See what central planning can accomplish", of course it helps to have 500 million slaves. Maybe that is the bitter truth of history - slavery works best. 

eurusdog's picture

This wouls definately be the biggest Euro debacle to date. Go Eurobonds!!! EURUSD 1.0000 by the end of the year as Germany pulls out of the Euro.

Manipulism's picture

Someone has an other opinion about this:


I would like to thank our European readers for sending the solution for Europe is to consolidate all the debt into a single Euro Bond. This is the first step in trying to save Europe next comes the debt reform. First, we have to stop the meltdown if that is not possible, we will eventually see war as everyone will blame everybody else... Martin Armstrong

lizzy36's picture

We will eventually see war. And everyone will blame everybody else.

ElvisDog's picture

The difference today is that Europe is not ready for war. Before WWI, every country was massively increasing their military. Germany and France had the ability to call up more than 1 million fully trained, fully equiped reservists in two weeks. Same story leading up to WWII - the countries had massive militaries ready to go. Completely different story these days where Europe in the guise of NATO couldn't sustain a conflict against Libya for more than a couple of weeks. There may be war in Europe someday, but it won't be a surprise becase rearmanent will take place for a long time before they're ready to go.

Cdad's picture

Down goes the moron driven rally of oil.  Flush go the options junkies, yesterday getting their fix, pounding down delta hedges like they were glasses of water.

Here....soon will come an opportunity...a real one.  But not the junkies first need to take their methadone.  

Cdad's picture

Up pop the Apple junkies...trying to turn and rally that old dog again to save the NASDAQ.  For 100's of days, they have gone back to this well again and again and again.  Great plan!  Buy the most over owned equity in the history of markets.

Expect a miracle print that has nothing to due with iPhones or valuation or forward earnings...but rather the perpetual attempt by terminators to hide the carnage in the tech group.  It is going to become a fabulous short candidate.

TruthInSunshine's picture

In the most epic equity POPS! in modern times, NASDAQ leads the way. Always.

The Facebook your RIP off bust (I know, I know...Facebook isn't publicly traded or traded on NASDAQ, but it would have been, and it would have and will gotten/get crushed) will be glorious.

Dick Fitz's picture

Cdad- what is your avatar icon? I can't make it out.

The market is too hopped up on pills and dope to function properly. The withdrawal crash is going to be epic...and perhaps fatal.

Sudden Debt's picture

what to do...

If Merkel doesn't agree... her future job for the German banking cartel may be a no go... or even worse... her carreer in the Europarlement when she retires migh come in jeopardy! IMANGINE!!! 25K A MONTH FOR DOING NOTHING! GONE! Can't have that right?

if she agrees, only the other Germ's would get stiffed.

Her own interests... the Germ's interests.... her own interests.. her own interests. her own interests...


lolmao500's picture

If euro bonds get life... all the money that is in the US could very well end up in euroland... and then, bye bye US dollar.

swissaustrian's picture

Germans don´t question their government. They like to be subjected.

Mutti is going to convert her party making some fancy promises. She won´t be reelected anyway.

SPD´s Peer Steinbrück (Bilderberger...) will be her successor.

mantrid's picture

As a reminder eurobonds are the last option

There's still that huge Bond Vacuum Tube Made In China eager to buy crap so it can "sustain" its imbalanced export. They've been buying US crap for years, now it's time for UE bonds too. Eurobonds are just a means to keep costs lower.

markar's picture

WW3 is already going on in EU. It's the ratings agencies allied with Wall St. & The City against the sovereigns. knocking them off 1 by 1 while sucking out the assets for pennies on the dollar. A 21st century war-- waged with derivatives instead of bullets & bombs.

Dick Fitz's picture

Markar, that's one of the most astute- and scary- observations I've seen on this crisis.I fear more people will die in this war than in the rest combined.

Thanks, now I have to change my shorts.

greek 83's picture

The interests of German(and European) people are irrelevant

The interests of German banking cartel are relevant

The interests of German industries are relevant

German Lebensraum is more than relevant

Action will be based upon servicing the above interests