Goldman Recaps Germany's Eurozone Stance On The Eve Of Thursday's Critical, And Much Despised, EFSF Expansion Vote

While we shared our brief summary of last night's lengthy ARD 1 interview with Angela Merkel, the Chancellor's views bear repeating since we are now just 4 days away from the critical EFSF expansion ratification vote to be held this Thursday in Germany. While expectations are for a prompt passage the downside, as improbable as it appears, bears some attention. Here is Goldman's Dirk Schumacher with a summary of what to expect this week out of Germany.

From Goldman Sachs:

Merkel confident to get sufficient support from ruling coalition on EFSF vote. Chancellor Merkel gave a lengthy TV interview yesterday. As the title of the interview ("Fight over the Euro") suggested the Euro was the main topic of the interview. Merkel highlighted again how important the Euro was for Germany ("we need the Euro, the Euro is good for us") and said she was confident that the coalition could rely on a majority within its own ranks for the EFSF vote this Thursday. Note, that a survey for ZDF television finds that a slight majority of those surveyed are not in favour of a Greek default. However, some 75% are against an expansion of the EFSF.

Merkel warned of a Greek default saying that it would be difficult to stem contagion in that case ("we are buying time for these countries to get their fiscal position in order"). However, she also made clear that the assessment of the troika (IMF, EC, ECB) was critical in that respect ("We would need to reconsider if the troika were to come back one day saying that Greece cannot make it").

Related to this, finance minister Schäuble suggested over the weekend at the IMF/World Bank meeting that the second Greek help package may need to be re-negotiated as the underlying assumptions would not be correct anymore. The finance minister also hinted at a possible further increase of the EFSF ("we want to use it as efficient as possible"), though he did not have a leveraging of the EFSF through the ECB in mind saying that "there are other possibilities within the framework than a recourse on the ECB".

The president of the constitutional court Vo?kuhle said in an interview with FAS that there are clear limits to what extent further power can be shifted on the European level. When asked whether the budget authority could be partially passed on to European institutions Vo?kuhle replied: "There is not much more room for shifting power to the EU. If this would be desired on political grounds, which might be politically the right thing to do, one would need a new constitution. This would make a referendum necessary. This can't be done without the population".

EU Commissioner Rehn said in an interview with Welt newspaper that the EU finance ministers will discuss in their upcoming meeting next week plans on recapitalising banks in the Euro-zone: "we need to step up our repair efforts in the financial sector in order to reduce the risk of a credit crunch".


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