German Chancellor’s coalition may hinder euro rescue

Summary of and comment on story from Spiegel Online, August 18, 2011

At a conference last year, I heard a representative of a major consultancy rattle off the following list: Charlemagne, Napoleon, Hitler and Brussels.

I had gone there to gauge the mood of the manufacturing and engineering industries in the UK to climate change legislation.

There is no doubt that this was a tongue-in-cheek comment, but it seems that, apart from industry, national governments too have concerns about handing over power to this seat of European Union (EU) authority, particularly in terms of economic dictats.

In light of the crisis in the EU, Angela Merkel, the first woman to hold the position of German Chancellor, and French President Nicolas Sarkozy would like to see further integration, including an economic government for the 17 member countries in the euro-zone.

But it is Germany that has sought to protect itself from transferring additional powers to Brussels, writes Spiegel Online (SO).

So far, Germany’s political parties have expressed approval for the Sarkozy-Merkel plan, unveiled earlier this week. The business-friendly party that Merkel shares power with, the Free Democratic Party (FDP), offered its “full support” for the leaders’ efforts.

At the top of the list for praise is the rejection, at least for the foreseeable future, of “euro bonds” – a strategy to bundle euro-zone debt that is widely regarded as the best solution by academics, financial industry gurus and assorted government figures, such as Chancellor of the Exchequer, George Osborne.

Still, Germany’s FDP party leaders stated that the introduction of a debt brake and measures for greater competitiveness and stability all look great so far after a special meeting on the euro, writes SO.

Shortly thereafter, Merkel’s other government coalition partner, the Christian Social Union (CSU), the Bavarian sister party to the Chancellor’s conservative Christian Democratic Union (CDU), also registered its view.

Senior CSU politician Gerda Hasselfeldt said the measures against high deficits should be welcomed, according to SO.

The resounding “boo” to the plan came from the equity markets, where companies’ shares are traded, as they nose-dived further this week amid increasing volatility that has resulted in record volumes of global trading. August, in less fretful years, is usually a slow month.

At the same time, the increasing intensity of the euro-zone debt crisis has kept the euro under pressure. And, in Germany, crisis management with regards to the euro and EU is being met with growing scepticism by the public.

Indeed, the market response shows it is being met with greater scepticism in many parts of the world.

Whether or not the plan delivers stability to the single euro-zone currency and to the European economy remains to be seen, certainly it has received a lukewarm response from every corner that does not have an incentive towards protectionism.

Moreover, despite the public pats on the back, there is discontent within Germany’s coalition government behind the scenes over the plan’s proposal for an “economic government”.

According to SO, this term, which the French president has used with particular verve, triggers allergic reactions among many in the CSU and FDP due to fears of powers being transferred to Brussels.

The general mood for European citizens seems to be, ‘oh no, here we go again’.

A crisis-weary public has seen retirement age increases, savings erosion from inflation and had to swallow austerity budgets amid eye-watering bail-out packages to save the global financial industry.

The austerity measures have had a disproportionate effect on women living in poverty, who are more vulnerable than ever before as it is this group feeling the greatest impact, say more than a few research studies.

But despite the weariness, the fear is palpable. If leaders can’t figure this out, what is left to cut? The one question that needs no answer is, who is this going to affect most?