Germany Wants First Say on EU Bailouts
Battle lines are being drawn over negotiations on the solution to the eurozone crisis. The German government’s ruling coalition agreed on a paper on February 24 that establishes how far Germany will compromise on any deal made with the rest of the European Union in the negotiations.
The paper is expected to be approved as a resolution on March 17 in the German legislative body, the Bundestag. While Chancellor Angela Merkel insists the paper is in line with the plan for a “competitiveness pact” that France and Germany jointly presented to a summit of EU leaders in Brussels on February 4, the paper goes even further and limits just how much she can maneuver in negotiating a bargain.
The competitiveness pact calls for eurozone members, and even non-eurozone members who sign up, to coordinate their economic and social policies. It is an effort to save the common currency. Germany and France are now in the process of selling the plan, which includes nations harmonizing their corporate tax levels, installing “debt brakes” and adapting retirement ages to a country’s average life expectancy.
The Bundestag’s paper—agreed to by the coalition partners, Merkel’s Christian Democratic Union, its sister Bavarian party the Christian Social Union, and the Free Democratic Party—goes even further, however, by definitively establishing who will have charge over the EU bailout purse.
Should a eurozone country need a bailout under the European Stability Mechanism, which is to come into existence in 2013, the Bundestag must first give its approval.
Germany’s goal is publicly clear: It wants direct control of the bailout funds.
The paper also rules out the idea of a “debt union,” where the EU as a whole guarantees the debts of all its member nations. The paper also calls for greater coordination of national budget processes, an EU financial market tax and stronger centralized surveillance over compliance.
And if eurozone nations don’t like the rules or fail to comply? They will receive no future bailout funds.
On the other side, European social democrat parties are stiffening their resistance as well, calling the options under discussion “shameful.” The Party of European Socialists issued its own document, which described the process as “bullying” and ignoring “basic principles of democratic accountability.”
When the competitiveness pact was proposed at the February 4 summit, it was strongly criticized by heads of states. The European Commission also took a swipe at the plan, saying only the measures that don’t “undermine the single market” should be included.
The battle lines are being drawn, with few supporters for Germany and France’s plan. Poland, a non-eurozone member, declared its support for all of the points of the plan, as long as Poland was included in negotiations.
Still, even with few supporters, Germany holds a strong position in negotiations. As Europe’s largest economy, it is the biggest contributor to the bailout funds, funds that it looks like several nations will desperately need.
The European Economic Advisory Group (eeag) of leading European economists warned in a report published last week that Greece may need another bailout by 2013 at the latest. The eeag even advised that Greece may have to drop out of the eurozone or impose harsher austerity measures to prevent the EU having to provide it with long-term aid.
Portugal’s finances are also in trouble. The country must refinance $5.8 billion in bonds, but many expect the rates will be so high that Portugal will have to seek aid from the bailout fund. Spain is also facing problems, specifically over billions of outstanding real-estate loans.
These countries that are facing the prospect of a bailout will not have much room to move in negotiations. French President Nicolas Sarkozy was pressuring Ireland to back the plan by pointing out how Ireland had already been bailed out.
“I rescued you, and I went to my parliament on your behalf,” Sarkozy told his Irish counterpart at the Brussels summit, reported Der Spiegel. “Now you have to help us.”
As Proverbs 22:7 states, “The rich rule over the poor and the borrower is servant to the lender.”
Germany may face an uphill battle in promoting its competitiveness pact, and may not be able to pass the plan as it was originally presented. But there is no denying that the eurozone crisis can only be resolved with Germany’s consent. This means any reform to save the euro will be led by Germany and will fulfill its demands.
Continue to watch Germany use the eurozone crisis to transform the EU into the image it wants. For a detailed forecast of Germany’s growing power in the EU, read our free booklet Germany and the Holy Roman Empire.