Bailout Rebellion In Germany
Tuesday, September 6, 2011 at 5:42PM "We're on the way to a worldwide financial dictatorship governed by bankers," said Peter Gauweiler, German Bundestags Representative (CSU), in an interview published Monday in the Welt Online. "We don't support Greece," he said. "We support 25 or 30 worldwide investment banks and their insane activities."
Successful lawyer, he fought back in the Federal Constitutional Court, arguing that Germany's role in the European Financial Stability Facility (EFSF) violates the constitution. The court's decision is expected on Wednesday. The foundation of the euro was the Stability Pact, he said—a contract that now has been broken. And he wonders if "the euro can still function as a value-retaining currency."
This, just as Wolfgang Schäuble, Finance Minister, has been dealt a defeat of sorts by his own governing coalition during the trial vote for the expansion of the EFSF, whose purpose it is to bail out an ever lager circle of debt-sinner countries. 25 members of his coalition voted against it or abstained. The actual vote is scheduled for September 29.
And the numbers are ugly. 89% of the population oppose the expansion of the EFSF and doubt that ever larger amounts will solve the debt crisis, according to a recent poll. 80% demand that parliament must agree each time before Germany can take on additional burdens and risks. And 85% demand that financial institutions, rather than taxpayer, take the first losses when a country defaults. What galls them is that they have to shoulder these risks and burdens so that debt-sinner countries can borrow even more at lower interest rates.
"The ECB's bond buying program was a mistake," laments Hans-Werner Sinn, President of Ifo Institute for Economic Research. Opening the money spigot removed the incentives for the affected countries to undergo needed budgetary and structural reforms. He holds up as proof Italy's currents effort to weasel out of budget cuts and tax increases and Greece's resistance to reform.
"It would be a lot cheaper for German taxpayers" if Greece exited the eurozone, said Hermann Otto Solms, financial expert of the FDP, the government's coalition partner, in an interview in the Südwest Presse. Greece has violated repeatedly the condition for the aid package, and "in the long run, that cannot be permitted." Otherwise, the system of mutual support will lose credibility, and other countries will be tempted to manage their own budgets at the expense of stronger countries. Of course, Greece's debt would have to be restructured, and banks may have to be bailed out again, just like after Lehman, but it would cost less than endless support. Greece would also be better off, he added. It would get rid of much of its debt. And drastic devaluation of its new currency would make it competitive in a globalized economy.
Meanwhile, Italy is backpedaling on its "blood-and-tears plan" to raise taxes and cut its budget by €45 billion. In Spain and Italy, people are demonstrating in the streets, and strikers are paralyzing Italian air traffic. Austerity plans aren't popular. It's easier to borrow and print than to get your financial house in order.
This is exactly what Jens Weidmann, president of the Bundesbank, warns about in an interview published in the Börsen-Zeitung. Euro-Bonds would undermine the incentives for heavily indebted countries to build solid budget policies, he said. "The jump into common liability without limits on national sovereignty could unravel the institutional framework of the Monetary Union."
Already in August, the Bundesbank had lashed out fiercely (article in English) at its omnipotent sister, the ECB, for its decision to print money and buy sovereign bonds of debt-sinner countries. These attacks put the Bundesbank on collision course with export-oriented industrialists and financial institutions that have been the primary beneficiaries of its neighbors' borrowing binge, something Germans tend to forget in the heat of the battle. But it's not just Germans.
"Let the euro die its natural death," said Marine Le Pen (article in English) in her populist manner. The media-savvy president of the Front National of France is one of the top contenders in the 2012 presidential election. Populists in other European countries are gaining ground as well. People have always perceived the euro as an invention by the elite for the elite, and many of the current problems in Europe are blamed on it. So whether or not the eurozone will survive in its current form and with its current members is at least partially a question of its ability to run counter the will of its people, and get away with it.
For a truly nasty moment in the euro crisis, check out my earlier post: Deutsche Bank Drives Nails Into Italian Coffin, Italy Accuses Germans of Egoism, Germans React. It's Ugly.
Reader Comments (5)
"Perhaps you have heard that Merkel had a miserable showing in the state of Mecklenberg-Western Pomerania. Her CDU party lost to the Social Democrats (SDP). This is the party that was in power during the formation of the Euro, and is probably more euro-centric than Merkel. Nevertheless, we hear many Germans object vehemently to bailing out their southern neighbors. If this is the case, and both of the major parties seem to endorse bailouts to some degree, will voters have a real choice in coming elections? (Reminds me a hell of a lot of the United States, BTW.)
It is during turbulent times such as these that mainstream, established political forces run the greatest risk of alienating their electorates. In Germany, this had dire consequences in the 1930's. Lest you think all of that is behind us, check out these articles about the far-right NPD, which won enough of a vote to hold their seats in Mecklenberg's legislature. By contrast, the pro-business FDP was voted out of the same legislature."
Is this not the case, that the SDP and the Greens are even more supportive of the Euro project than is Merkel's CDU?