The Corner

Merkel’s Dilemma

Ambrose Evans-Pritchard has a good piece in the Daily Telegraph on Angela Merkel’s euro problem. Read the whole thing, but here’s an extract:

For all her fiery language in defence of the euro…Chancellor Angela Merkel has not yet agreed to pay one cent in help to crippled debtor states. Nor has she faced up to the elemental question hanging over monetary union.


Her own Bundesbank argued years ago that EMU is unworkable without fiscal union, and it has been vindicated by the events of the past two years. Either creditor states agree to an EU treasury, ‘Transferunion’ and debt pool, or EMU will be subject to unending stress and ultimately fracture or shrink to a viable core, or so goes the argument.


This ‘Fusion or Fission’ debate has not been settled. Yes, there has been much talk about Eurobonds and rescues. Talk is cheap. The reality of Germany’s ‘rescue policy’ is to extract subsidy from the periphery by lending to Greece and Ireland at rates far above its own borrowing cost, widening the gap between core and periphery yet further….


…Ireland perhaps has a theoretical chance of surviving Merkel’s penal rates. How its democracy will react to this is an open question. A Fine Gael-led government may be elected this week. We will find out how long Ireland is willing to suffer debt servitude to pay German, British, and Belgian banks.


Greece has no theoretical chance. Nobody other than those paid to apologise for this travesty of a policy believes Greece can escape a compound interest spiral under an EU-IMF regime that will push public debt to 150pc of GDP.

Merkel’s problem is that the German public were never really consulted on whether they wanted the euro in the first place (there was a ‘good’ reason for that: they didn’t).  Persuading them to change the terms of an agreement to which they had never agreed will be no easy task: thus Merkel’s problem.


And this news just added to it:

Angela Merkel’s conservative Christian Democrats (CDU) suffered a humiliating defeat in a key German regional election – something that will make governing all the more difficult for her already shaky coalition. Exit polls released after polling stations closed suggested the German chancellor’s CDU had lost control of Hamburg to the opposition SPD party.

One poll, conducted by the state television channel ZDF, projected that the centre-left SPD was set to win 50% of the vote. The CDU took just 20%, according to the pollsters – the worst result for the party in the port city since the second world war. The dramatic plunge in support for Merkel’s party, which polled 42.6% of the vote at the last election in Hamburg in 2008, can be attributed to voter dissatisfaction with the chancellor’s handling of the euro crisis as well as problems within her own party at home and particularly in Hamburg…

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