GERMANY HAS dismissed the suggestion by Taoiseach Brian Cowen that Chancellor Angela Merkel had, unwittingly, unnerved financial markets by insisting that private bondholders would have to participate in future sovereign debt bailouts.
A German government spokesman said yesterday that Dr Merkel was merely speaking her mind and could not be held responsible if markets misinterpreted a statement on future regulation as applying to the present.
“There has never been a doubt that we are clearly differentiating between the future crisis mechanism and the current mechanism, the euro rescue fund,” said Dr Christoph Steegmanns, the government spokesman.
“We don’t want to be unfriendly but we have our positions; we have our work to do; and that is what we are expressing.”
Berlin has clearly been hard at work since the recent EU summit when its partners ruled out its call for the suspension of voting rights for chronically-indebted euro zone members. A leaked draft paper calls for the proposal to be put back on the agenda.
“An offer of help is, in any event, to be strictly conditional ... and tied to a series of strict constraints to minimise the ‘moral hazard’ on the side of the indebted state,” the draft paper from the finance ministry states. It cites the “voluntary suspension of voting rights” as a possible condition for future bailout recipients.
“It certainly is a daring move but I don’t see much chance of success,” said Prof Dr Tanja Börzel, a political scientist and EU expert at Berlin’s Free University. Considering stiff opposition from other member states, she suggests the move is intended to placate Germany’s highest court and prevent it ruling unconstitutional last May’s EU emergency bailout of Greece.
“Dr Merkel wants to be able to say in public and before the court that she tried everything and this is all that’s politically possible now, in the hope of stopping Greece bringing down Ireland or Portugal with it,” said Dr Börzel.
Beyond that, Dr Merkel is weighed down by concerns about the consequences for the euro zone, and export-dependent Germany in particular, of a prolonged US recession.
In addition, the chancellor faces voters who are sceptical that there is not any way to prevent Germany having to underwrite other countries’ financial crises.
“We will end with fiscal federalism, a term we might struggle with but that’s what this all means, and Germany will need to pay more,” said Dr Ulrike Guérot of the Berlin office of the European Council on Foreign Relations.
“The tragic truth of this is that the German economy is so asymmetrical to the economies of other euro zone countries and, with the rescue fund, we are potentially headed for more divergence, not less.”
