Bundestagnation

FEAR is quietly stalking euroland.

People are so afraid of losing their money that certain states, perceived as safe havens, are under pressure from the bucket loads of dosh being stashed there.

Investors are willing to pay Germany to take their money; Denmark is under immense pressure from the amount of money being transferred into Danish krone; Switzerland is desperately trying to hold the value of its francs as people rush for the safety of the little alpine state.

Despite €100bn being thrown at Spain to cover their banks; a rainy day fund of close to a trillion dollars and despite Greece voting for the austerity that is crippling them — the markets remain unconvinced and stocks continue their decline.

What started out as a little cooking of the books in Greece is turning into a global conflagration — just as mad euro-sceptics warned at the very beginning, but everybody thought could never happen.

The EU’s leaders would never allow it. The common currency was too valuable. It had proved its worth both in reducing the costs of doing business and in catapulting the euro into second place in the world’s most valuable currencies.

But the financial crisis turned into an economic crisis and then into a public debt crisis. Now, three years later and despite plans, proposals, statements and various measures it appears to only get worse.

Germany and other like-minded countries, such as the Netherlands and Finland, talk as though the markets are rational beings that will listen to reason — it’s just a matter of convincing them that Europe is serious about its intentions to reform, stabilise and grow.

They refuse to see it in the context of speculators betting on anything that looks winnable and instead insist that the eurozone is dealing with big insurance companies and other investors that only seek safety for their clients’ funds.

Now we are heading into another summit where the expectations are high that a silver bullet will be produced that will save the day. French President François Hollande is seen as a knight riding on a white horse to the rescue of hard pressed economies who will defeat the German Calvinist approach of pain and suffering.

Germany, far from being the wunderkid of the eurozone, is seen as the villain, refusing to open the coffers and show the kind of solidarity the EU was supposed to be founded on.

The accusations and blame game was well under way at the G20 summit in Los Cabos in Mexico even before German Chancellor Angela Merkel crossed the Atlantic. “Fix it” was the message being hurled at her from politicians from around the globe, frantic as they see the seepage from the euro crisis dragging down their economies too.

But perhaps Germany is unable to open up the spigot and rescue the euro. Ms Merkel said as much to her parliament last week, warning that Germany itself has limited capacity with unemployment at 8%, growth forecast for 0.7% and being reliant on their domestic demand rather than exports.

She, and therefore the EU, has two problems. The first is that she heads up a federal government with members from the 16 fairly autonomous German states. They have their own problems — three of them are in serious debt, especially Berlin with €60bn and growing by €1bn a year mainly because of the cost of reunification.

Anything Ms Merkel wants, she has to pay for. Getting agreement for the 66% support she needs in the Bundestag to pass the fiscal treaty, and the ESM, meant agreeing to more money for some states, and to a French-inspired growth compact for the opposition socialist party, the SPD.

While politicians can be bought off, it is not so easy to deal with the law. The German Constitutional Court sees its role as controlling political action to ensure that the rights and freedoms guaranteed by German law is not contravened.

They have already carefully defined the areas where EU power ends and German law over rides — and this includes budgetary powers, and anything that influences spending and income will have to be endorsed by the Bundestag. So even the argument that economic prosperity — or indeed the survival of the euro itself — could depend on making an exception or even agreeing to a compromise between EU leaders will not wash. The court will insist that this ‘good’ cannot over ride the principles of democracy.

As a result, every decision about every cent that will go to a country in a bailout programme or even for their banks has to be approved and the Troika reports all have to go to the Bundestag as they must approve it. Claims that this amounts to making the Bundestag and its budget committee the government of the eurozone are easily countered. Every country has a veto under the EU rules. Tiny Malta as well as massive Germany can achieve the same effect.

THE only way Germany can become more flexible and involved in joint liability for others’ debts — as would be required under straight eurobonds or a full redemption fund for debt or even a eurozone wide banking resolution fund — is if it changes its constitution. Lawyers are quick to point out that within the federal republic of Germany there are no bonds with one state liable for the debts of another.

The EU treaties also have a no-bailout clause, put there when Germany feared being dragged into the mire when they negotiated the framework for the euro just over 20 years ago in Maastricht. The clause makes it illegal for one member to assume the debts of another.

Possibly before Germany could even embark on discussions to change this no-bailout clause, they would need to hold a referendum — banned under almost all circumstances. Only in this way do they believe that the German people would allow their politicians to negotiate pooling debt and wealth — if they knew that they, the voters, had the final say on the final deal.

However, Mrs Merkel is already laying the groundwork for the conditions that Germany might even consider such a step. And that is full political and economic union, where full control of budgets that would include tax policy would be centralised.

But would every other eurozone country accept such a change to its sovereignty. Some diplomats and economists argue that no country has real sovereignty over its economy with strong currencies, banks, markets all deciding the shape ultimately.

Even within Germany, politicians question the intention behind the growing push for a new treaty. Andrej Hunko of the left wing Die Linke party in the Bundestag sees it as a power-grab by the centre right: “They are not trying to stop the crisis but using it to push the German stance and power in Europe. This is a rupture of what German chancellors did before — this is not a move towards integration as happened in the past.”

It is quite clear, however, that eurobonds and bank redemption funds will not be part of the immediate answer the eurozone will give to markets at the summit later this month.

Whether they will buy the determination to move towards a very united eurozone with a single economic and fiscal policy is another question.