Shifting Sands

by Andrew Stuttaford

Two stories from Der Spiegel highlight the ever more complicated political territory in which Angel Merkel now finds herself.

The first:

The parliamentary vote last Friday provided a clear look at the rough road ahead. While Merkel received the two-thirds majority she was looking for in the vote to approve the ESM [the new bailout fund], fully 26 coalition lawmakers — 16 conservatives and 10 from the FDP [her liberal coalition partners] — voted no. It is a clear indication that Merkel is losing control over her own parliamentary majority — so much so that many political observers in Berlin have begun speaking of a coalition crisis. Indeed, given the growing rebellion, her reliable parliamentary majority is on the verge of disappearing altogether.

What’s more, the opposition is also becoming restless and has vowed this week to no longer provide its unconditional support to the chancellor’s euro-zone moves. Within the center-left Social Democrats, there is concern about the plan to provide Spanish banks with direct aid from the euro bailout funds.

“Merkel will not be able to rely on the permanent agreement of the SPD, and certainly not when it comes to this half-baked idea” of aiding Spanish banks, Social Democrat budgetary expert Carsten Schneider told SPIEGEL ONLINE. “She’ll have to pass things with her own majority.”…

“Half-baked”. Strong words.

Hold that thought, and then note this story from Reuters:

Any risks attached to financial assistance given directly to banks by the euro zone’s ESM permanent rescue fund would remain the responsibility of the country requesting it, a senior euro zone official said on Friday.

Um, that’s not what people  (including, I assume, Mr. Schneider) have been assuming, at least in Spain’s case.  If the ESM’s aid to Spanish banks requires a Spanish sovereign guarantee, then market hopes that they would not count towards Spain’s debt/GDP ratio have been misguided.  Earlier today (before this story) Spanish 10-year government bond yields had already broken back through the (somewhat arbitrary) seven percent danger level. That’s where they were before last week’s “rescue”.

But back to Germany:

On the question of the single currency and its survival, the majority — 54 percent — believes that Germany should not continue to fight to save the euro if it has to provide additional billions in aid. A sizeable minority (41 percent) disagrees, however, while 5 percent are undecided.

Tick tock.

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