As James noted earlier, Angela Merkel’s response to the Eurozone crisis is hampered by
the awkward arithmetic in the Bundestag. Merkel has been faced with these difficulties throughout the crisis. Her answer has been to oppose initial proposals to solve the Eurozone crisis, only to
relent later in the day. This has been the pattern from the first Greek bailout to the expansion of the EFSF, which is currently before the Bundestag. Might her apparently determined opposition to
Eurobonds (which, of course, would require a huge transfer of power and cash from Berlin to the Med and Brussels) go the same way? Wolfgang Münchau has a comprehensive piece on the subject in
today’s FT. Here’s a brief excerpt:
‘I know there are people close to Ms Merkel and Mr Schäuble [her finance minister] who agree that a eurobond will be the only solution to this crisis. I would not be surprised if
they had even drawn up an emergency plan. But the politics is holding them back. Ms Merkel has a tough battle on her hands to secure a parliamentary majority for the extension of the EFSF. She
will probably win it, but she might not win a fight over a eurobond. Her coalition would probably break up.
So, while I cannot see how Greece or Italy can remain in the eurozone indefinitely without a eurobond, I find it equally hard to see Germany, Finland and the Netherlands agreeing to it. So
something will have to give. A small eurobond, covering only a small percentage of sovereign debt, looks a tempting fudge. But it would not solve the crisis. Perhaps a Social Democrat-led German
government would accept eurobonds after elections scheduled for 2013. But that would be too late. Perhaps the next stage of the crisis will be so severe that everybody grows scared enough to
accept it as a lesser evil. That might work, but it is not a scenario you would wish for.’
The crisis is expected to deepen and solutions have been lost in a continental-wide political
morass, as governments scramble to protect their taxpayers. Münchau goes on to explain that the markets are “perfectly rational in betting against the Eurozone” unless there is a
dramatic change of political direction, and not just in Germany.