Was Merkel's Surprising "Defeat" Merely A Gambit For A German Referendum?

Tyler Durden's picture

As details from Thursday's European Memorandum of Understanding, which has all the binding power of a 'highly confident letter' issued by a third tier investment bank, continue to be non-existent, the questions, and conditions, are accumulating fast. While the ESM passed with a solid majority in both the lower and upper houses of German parliament yesterday, its fate is now in the hands of the German constitutional court which as reported previously has requested extra time to study the bailout plan, before it gives the all clear for a presidential signature. Sound familiar? And barely did the ESM pass the ratification vote, before lawsuits alleging its unconstitutionality start pouring in. But probably more importantly, Focus magazine reported overnight that the first clear condition from Germany will be the enactment of a Financial transaction tax for all countries where the ESM would be operational in order to minimize the burden on German taxpayers. In other words, banks would effectively pool their profits, in order to fund the bailout of other banks (or their own). In retrospect, it does not sound like a bad idea. It may even pass the recently conceived "fairness doctrine" of the Great June Socialist Revolution. Most importantly, however, it appears that events over the past week may have been merely a gambit for something that Schauble and Weidmann have already hinted at: a popular referendum that decides the fate of Europe once and for all, washing Merkel's hands and letting the people decide if they want the European experiment to continue or not.

From Dow Jones:

The German government wants to tie using the funds from the permanent bailout fund to directly aid banks to the financial transaction tax, German news magazine Focus reported on Saturday citing sources. 


The German government intends to push for the condition that only banks belonging to the countries that institute a financial transaction tax would be able to directly access funds from the European Stability Mechanism, the magazine said. The countries would then use the additional revenue from the tax to fund  the ESM, reducing the burden on German taxpayers. 

So which countries will find their sovereign bonds tied to a transaction tax? From Reuters June 22:

Finance Minister Wolfgang Schaeuble said 10 countries were prepared to use an EU process known as 'enhanced cooperation' to push ahead with developing the tax, which Britain and other states, including some in the euro zone, oppose.


Enhanced cooperation requires at least 9 EU countries to agree to work on a proposal. France, Italy and Spain are all behind Germany with the initiative, German Chancellor Angela Merkel said after a meeting with her counterparts in Rome.


Revenue from such a tax, which some analysts estimate could raise more than 50 billion euros a year depending on the number of countries that participate, could be used to finance initiatives such as a fund to wind down bad banks.


"My impression is that quite a number of member states strongly support the proposal of an FTT (Financial Transactions Tax) in principle," Schaeuble said after a meeting of EU finance ministers in Luxembourg. "We should give it a try."

Which basically means that banks in countries that have no choice but to agree to a FTT effectively become utilities: something that should have happened in the US years ago. It also means that the banking sector will see itself "divested" of numerous jobs as remaining workers will scramble to go to those areas in the Eurozone where the FTT does not put a cap on bonuses.

Yet the other question is even if €50 billion can be raised each year from the FTT, where will the balance came from? Obviously, the bulk of it, will have to be sourced from Germany. Which then presents an interesting case: has Merkel's move over the past week been nothing but a gambit, to let a referendum, or a public vote on a European bailout, come into play? Should the constitutional court find a snag with the ESM it is very likely that Germany will have to resort to the popular measure, whose outcome will remove blame from Merkel for her actions once and for all.

One may say: "Preposterous, what referendum?" After all Greece's G-Pap was sacked by banker interests for even daring to propose such a thing. Actually, in the case of Germany it is not preposterous at all, and may be precisely the final showdown that Merkel and Schauble have in mind. Recall from Spiegel last week:

German Finance Minister Wolfgang Schäuble kicked a political hornets' nest when he suggested to SPIEGEL that a referendum on efforts to save the euro will have to be held sooner or later. German commentators jumped into the debate on Tuesday.


Merkel immediately distanced herself from Schäuble's comments, saying through her spokesman Steffen Seibert on Monday that any such referendum wouldn't be coming any time soon. But several other politicians indicated their support for the idea, including Social Democratic bigwig Peer Steinbrück and Patrick Döring, general secretary of Merkel's junior coalition partners, the Free Democrats. Steinbrück told the Stuttgarter Zeitung on Monday that "if you have been listening carefully to the Federal Constitutional Court, you would realize that there is no way around" a referendum.


Indeed, the decision over a referendum may ultimately not be a political one. Germany's Constitutional Court, the highest in the country, has recently indicated that the limits of the country's constitution have been reached when it comes to efforts to save the common currency. Already, the court is fielding several legal challenges to the European Stability Mechanism (ESM) and last week it controversially asked German President Joachim Gauck to delay signing the law until the court could fully examine the challenges. Last September, Constitutional Court President Andreas Vosskuhle said that further European integration would require a new constitution, making a referendum unavoidable.


"It is remarkable how quickly the CDU wants to stifle a debate that started with its own finance minister, Wolfgang Schäuble. His boss Angela Merkel called referendums over constitutional amendments dealing with Europe's future as a step for 'the day after tomorrow' … Sure, but actually, why not? … In recent months the tempo of political integration has accelerated. The fiscal pact, a banking union and joint liability -- all of this was unthinkable even just a short time ago. But so far politicians and citizens have been acting more as followers than framers. Often because leaders have delayed decisions until there were no other options."


"Politicians and citizens alike must be able to debate the alternatives in peace, weighing the pros and cons -- and to vote on them. Otherwise the EU loses its legitimacy. But this can't happen in just a few hours, as Merkel would apparently prefer. Instead we need a long and intensive discussion, both in parliaments and in the public. But for this to happen, one can't wait until the day after tomorrow. It should begin today."

So the question is: was the Vaffanmerkel cover nothing but a very Pyrrhic victory for the Italians? Because if indeed this is the chosen sequence of events, ultimately Merkel merely put the decision in the hands of the people. Correction: the angry people. Now that events are in motion, we will get the answer very quickly. As Focus write the lawsuits challenging the ESM are already piling in:

The first lawsuits against the consent laws for the European fiscal pact and the euro rescue ESM went immediately after adoption in the early hours of Saturday at the Federal Constitutional Court, the first law suits. Around midnight, was a messenger from the constitutional complaint of the CSU politician Peter Gauweiler at the gate of the court. The appeal of the "more democracy" that had attached themselves to the information about 12 000 citizens, was submitted to the highest German court. This action is supported by the former Justice Minister Herta Daeubler-Gmelin (SPD) and represented the Leipzig constitutional lawyer Christoph Degenhart. A lawsuit was faxed to the left, according to a party spokesman also immediately after the Federal Voting to Karlsruhe.


A total of five complaints against the actions in Karlsruhe announced. Federal as Federal had passed laws to multi-billion euro rescue package and the fiscal pact for more fiscal discipline before, each with two-thirds majority. The Federal Constitutional Court had asked President Joachim Gauck, to delay the signing of consent laws to ESM and Fiscal Pact, to the judgment of the decided Eilanträge the plaintiff. It is expected that this still happens in July.


"We complain of the contracts, because they mean a dismantling of democracy in two ways," said Däubler-Gmelin. "For one thing forever budgetary powers and sovereignty rights of the Bundestag to Brussels to be delivered. Thus, the Bundestag election is canceled. On the other hand, the ratification is quite hectic and over in the population. " In a press release Gauweilers it was said that fiscal pact as ESM would "cast in serious breach of the principle of democracy." So wear the ESM contract to dispose of hundreds of billions in tax dollars on a "democratically legitimized not organization"

In other words, was Merkel's surprising "defeat" on Thursday just a brilliant gambit to get her off the hook, and let the people decide where the chips may fall? It wouldn't be the first time Germany has fooled Europe about its true motives.

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slaughterer's picture

Without a referendum, Merkel's future in Germany is over, but she may have a future in Brussels.  All signs point to the fact that she is aware of this fact and preparing her office alongside von Rompuy and Barrosa for when she gets voted out of Chancellor office in Germany.  

Colombian Gringo's picture

Merkel knows she will be politically destroyed in Germany if she agrees Germany backstopping the PIIGS.Besides, working in the EU will be easy since all she will have to do is collect a check and do nothing like the rest of the EUcrats.

So a referendum makes sense.

Richard Chesler's picture

If you believe banksters will allow the little people to decide anything, you haven't been paying attention.


MillionDollarBonus_'s picture

Referendums have been totally discredited. After the first Greek referendum, I distinctly remember a sharp sell off in Greek bonds that effectively lead to the current crisis. Referendums are a very dangerous idea indeed. The idea of referendums is sold as a harmless forward-thinking initiative, but the reality is that referendums are a very new and radical idea. 

Pure Evil's picture

Ah yes, I can see the newsreels of old now, "Communism marches on!"

Just think if good ole Joseph Stalin were alive now he'd be kicking himself for not seeing it earlier.

Instead of wasting money on vast armies of tanks and men all he had to do was loan the PIIGS billions of rubles to live, how did the old communists put it, decadent lives.

Then he could hold them hostage by promising to bail them out with the vast reserves of Russian oil, natrual gas, gold and diamonds, only if they would surrender their national sovereignty to form an expanded USSR.

What was it you said before about communism equaling progress, liberty and what else?

Too bad the follow on communists fucked up so bad the whole thing imploded, kinda of reminds me of the bang up job the current marxist is doing.

sablya's picture

Yeah, MDB, you're a real man of the people.  Don't let the people have a say in how their money is used.  Very nice.

Sudden Debt's picture

the only thing people get to decide with the banks is if they want to pay on a monthly or weekly basisi.

macholatte's picture


In other words, banks would effectively pool their profits, in order to fund the bailout of other banks (or their own).


Let me see if I got this right.......

Isn't "pooling of resources" what led to the "cirses" in the first place and the so called "contagion"?  (Each country has to pay a proportional share of the cost to bail out the other countries so that Greece is obliged to pay up money to a pool to bail out Greece. Then Greece has to pay money to help bail out Portugal while Portugal is helping to bail out Greece. Then Greece has to pay money to help bail out Spain while Spain is helping to bail out Greece and Portugal....and so on and so forth and all of it with money created from nothing.)

So now, they want to implement the same failed concept but it will be the banks doing the circle jerk.

Did I get that right?

And this is supposed to be a solution to a problem caused by insolvent banks. Right?

Or did I miss something?



Pure Evil's picture

Shhhh.....don't let the cat out of the bag and ruin it for the European bankers.

Its almost unfathomable to imagine the number and amount of bonuses the bankers will be able to collect off the financial transaction fees while they circle jerk each other off. If things go well, the shpliz will never run dry.

And you can bet Goldman will be there right from the start with their finger in each sphincter pie.

pkea's picture

At least Germans know how to file a lawsuit for the right cause within a day unlike some in the US has yet to learn 



The first lawsuits against the consent laws for the European fiscal pact and the euro rescue ESM went immediately after adoption in the early hours of Saturday at the Federal Constitutional Court, the first law suits. Around midnight, was a messenger from the constitutional complaint of the CSU politician Peter Gauweiler at the gate of the court. The appeal of the "more democracy" that had attached themselves to the information about 12 000 citizens, was submitted to the highest German court. This action is supported by the former Justice Minister Herta Daeubler-Gmelin (SPD) and represented the Leipzig constitutional lawyer Christoph Degenhart. A lawsuit was faxed to the left, according to a party spokesman also immediately after the Federal Voting to Karlsruhe.

andrewp111's picture

I'm sure Merkel has a plan for the German banks to win regardless of the outcome of a German referendum. Whether a new DM or a EU fiscal union results, the bankers will win either way. It will be heads I win, tails you lose. 

zilverreiger's picture

May I remind you ESM already passed german parliament 3 votes to 1? It's hardly Merkels work alone.

Wish we could look into her head and see what her real strategy is? what conclusions she has already drawn.

odatruf's picture

Or maybe - and I understand how radical this would be and why anyone might scoff at the notion - but just maybe Merkel has been saying what she thinks all along.  No means no.  No further backstop without a corresponding transfer of additional controls.  And spending reforms must be actual and not just promised.

But perhaps that would be too far down the rabbit hole to ponder...

Newsboy's picture

The Financial Transaction ("Tobin") Tax is a very good idea, and even the banks may accept it as a bit of cover for what is about to take place. Expect a really low level tax , much ballyhood, if it does go through.

zhandax's picture

I got as far as "Dr." before recognizing it as regurgitated bankster horseshit.

Clever Name's picture

I thought everyone was making too big a deal over an FTT because I thought the proposal was pennies per transaction, then I looked at the Tobin tax and its a percent of the transaction! Oy!


And as all are saying, as if the little people will be the deciding factor. Good luck with that. Gerexit anyone? What are they waiting for anyway? I would think if that in itself was put to a referendum, they would bail immeidately, no?

Sudden Debt's picture

that's the fucked up part of it all!
Brussels, the place where hated politicians go to die for 50k a month!

Randall Cabot's picture

"It wouldn't be the first time Germany has fooled Europe about its true motives."

Enough with the canards please.

Nachdenken's picture

Without Germany will there be a European Union ?  Merkel will join van Rompuy and Barroso as an advisor to ... your guess.

Peter Pan's picture

Even better than a referendum will be to allow the free market to remedy the ills we are suffering from. The longer we resist the free market the greater her vengeance will be regardless of what hare brained politicians, bankers and economists come up with.

Cognitive Dissonance's picture

You can "lose" several battles and still win the war. We ain't seen nuttin' yet.

Just saying.

vast-dom's picture

All I can say at this stage of the game is THANK GOD for MERKEL! 

darkpool2's picture

Except i am undecided whether she is a good or bad thing.....does she actually simply delay the timing of the necessary ultimate reset? If so, will it be worse then?

DeadFred's picture

Merkel is playing this crisis for Germany's advantage. Who on ZH really thought she caved to Monti's theatrics, or at least still thinks she caved after reflecting on it? Whatever the game is that's being played the Germans had all the cards.

Miles Kendig's picture


Time to send a new Chancellor over

HyperLazy's picture

A Germanic referendum?

Would that turn out like the Grecian Formula referendum? You remember, when Papandreou got knocked over the head and replaced with a Goldmen Sucka technocratic CoFR muppet master Papademos. Oh what a graceful coup d'etat that was.

Watch yer back Merkelette, unless of course its all scripted and part of the show.


Pure Evil's picture

Shakespeare couldn't write a better tragi/comedy than this cuckolded kabuki theatre.

kikkoman's picture

I think you mean bukkake.

China's picture

Geryman and France are up to something. Hollande's plane was struck by lightening on the way to see Merkel after being elected. It was a warning for them.

Marginal Call's picture

Lightning strikes planes all the time, on average every plane in service get's hit once a year.  It has usually harmless, and hasn't brought a plane down all by itself. And I'm not conviced we've mastered targeted lightning  

just yet either.

I'm not buying the "warning" theory.

Jake88's picture

it could only be a warning if they were superstitious idiots.

DrewJackson's picture

You mean something like, if we keep printing everything will work itself out....

Hedgetard55's picture

Rearranging Titanic's deck chairs.


The debt has been incurred, it cannot be paid back, the only questions left are who gets stuck with the losses and do they have enough juice to cover them?

Nachdenken's picture

..."who gets stuck with the losses and do they have enough juice to cover them?..."

Easy - you and I and Joe who also works and pays taxes.  Ask Joe.

falak pema's picture

back peddling logic does not make for sound forward looking policy. She will get hung worse for being a false shill if she hides behind a legal decision. Its make or break time for German banks. And Euro banks. Lets never forget that. Does she want to start financial armageddon? 

If she does it will go global and there is no telling where it will end. Awesome call. 

slaughterer's picture

The liberal career politician muppets and Champagne socialists in the German Bundestag will vote for anything that "helps the EU" so the positive vote for the ESM on Friday was no surprise.  But the decision-making in Karlsruhe over the ESM and the court cases have a good 50% chance of leading to a referendum, even more is it a possibility if more voices than Steinbrueck (perhaps the next Chancellor after Merkel) and Vosskuhle start pumping for a referendum.  What we have here is the starting of another phase of instability, not unlike the whole bailout/anti-bailout question in the Greek elections, here reproduced at the very center of European power: Germany.  German popular opinion has become increasingly negative against Greece, so if the Greek "negotiations" are timed alongside such a referendum, I imagine the two events might lead to a NEIN on ESM.    

Jack Sheet's picture

Comments on the largely tax-free earning German Bundestag members (who can fix their own cast-iron inflation-proofed salaries and pensions in addition) well taken. I find it naive, however, to pin hopes on a referendum occurring or on the results if it were to take place.

slaughterer's picture

If the Greeks were to be unreasonable in their demands in the renegotiation of their bailout, it could spin German public opinion towards a NEIN on the ESM.   Without the "corrupt, lazy" Greeks in the German public eye, I agree, the German referendum will pose no serious threats to the ESM.  The two parts of the story need the proper sequencing.    

sangell's picture

I see the Germans have learned from Nancy Pelosi that you have to pass a bill before you can learn what is in it! And how is the German High Court to discern if the ESM is legal or not when its very provisions and purposes change from summit to summit? The "LAW" is a pretty malleable thing in Europe these days.

Jake88's picture

or anywhere for that matter. remember the us constitution?

Gloomy's picture

This is a real game changer. Like TARP in the US. I hate to say it, but Dow 15,000 here we come!!!

i_call_you_my_base's picture

You may be right, but from a reality POV, this won't change the downward move in the global economy, with a recession in the US, Europe, and Asia on the horizon. It will deteriorate whether Europe is "saved" or not.

slaughterer's picture

What is amazing is how little European politicians have learned from the US TARP disaster from a  few year ago.  You would think that historically-oriented and critical political cultures would not import this US "swindle the taxpayers" programme into their borders.  But import it they did.  

EU Finance crisis for dummies:

First, the "stupid Germans" bought the MBSs from MS/GS, et. al.  and bankrupted their banks. 

Second, the "stupid Germans" put into effect a Euro-TARP and bankrupted their Treasury.  

Gloomy's picture

You are wrong. They have learned. Yeah, its all crony fascism, but oh look how the markets responded to our TARP. Damn the legality or what is right for the people. Equities now to the moon!!!

slaughterer's picture

Markets had a nice crash after TARP.  Remind me, what exactly triggered the crash from Nov. 2008 to March 2009?

JR's picture

Raul Ilargi Meijer on Market Oracle says: “First off, all those people talking about a solution for the eurozone need to finally understand there ain't no such thing,” and, "If Angela Merkel is half as smart as she appears to be, she's ready for about all of them."

Here is an excerpt from Meijer’s post yesterday: “Angela Merkel Is Playing You for Fools”:

… A thought experiment: how would you solve the euro crisis if Germany were not part of the equation? If you would have to put the de facto German contribution to the puzzle at zero, neutral? What would you be left with then, and what steps would have to be taken to come to a solution? If the sole remaining big players were, let's see, France, Spain and Italy?

That changes the picture, doesn't it? Take Germany out and all you're left with is pretty much roadkill. Plus a motley crew of comparatively small barely breathing rodents like Holland, Finland and Austria.

See? With bailouts for Spain and Italy now all but inevitable, if you leave Germany out of the picture for the moment, you're left with no-one at all to pay for those bailouts. Not even a complete and immediate move towards a fiscal, banking and political union would do anything to resolve Europe's financial quagmire if Germany is not present.

In other words: it all comes down to Germany. Berlin is on the hook for everything. The required funding for the EFSF and ESM emergency funds would, with Spain and Italy moving into roles as debtors instead of creditors, have to come from Germany to the tune of what would fast approach 50% or so.

Does anyone think that is realistic? That Germany can make the markets truly, as in for more than a day or so, believe it has that kind of money lying around, and is willing to gamble it? Or is it perhaps more likely that, if the Germans would even try it, the markets would turn on Berlin the next morning? If you look at bunds right now, there's no doubt they're perceived as a safe haven. But what are the chances that perception would last if Merkel agreed to take on the Savior Of All Of Europe part? …