Europe’s leaders should brace for four more years of unbending German policies to fight Europe’s debt crisis as Chancellor Angela Merkel leads the polls seven weeks before elections, one of her senior lawmakers said.
If re-elected, Merkel will stick to her position that neither government nor bank debt can be mutualized as long as risk takers are free to make others pay for their own mistakes, Michael Meister, deputy chairman of Merkel’s Christian Union caucus in parliament, said in a July 31 telephone interview.
“The German position is clearly stated” by Merkel and lawmakers and “none of its guiding principles will change after the election date,” Meister said. “The apologists in other countries should be prepared to deal with four more years of this German policy.”
The European Union is “in the waiting room” until the German vote on Sept. 22, Maltese Prime Minister Joseph Muscat said in a July 15 interview, suggesting some of Merkel’s counterparts are hoping for more flexible crisis-fighting steps by the chancellor once anti-bailout voters have gone to the polls.
Greece will probably need more money and debt relief in order to meet the objectives of its bailout program, according to a July 31 International Monetary Fund staff report. Most of Greece’s debt is now held by Europeans and the IMF after investors took part in the biggest debt restructuring in history last year.
Merkel maintained her lead in opinion surveys this week, with her Christian Union bloc holding at 41 percent and her Free Democrat coalition partner remaining at 5 percent. All opposition parties in parliament combined held at 43 percent.
The Chancellor’s coalition of her Christian Democratic bloc and Free Democrats rejects European Commission proposals for a banking union — supported by a majority of EU countries — due to concern it may force German taxpayers to pick up the bill for failed banking supervision elsewhere in the region.
A July 26 Die Welt newspaper report suggested Finance Minister Wolfgang Schaeuble is looking for ways, including legal action, to derail EU financial-services chief Michel Barnier’s proposal that includes a single fund to wind down troubled banks.
“We will quite simply not agree to such arrangements. Period,” Meister said. “We as parliament have given our German federal government the power of attorney on the issue of transferring responsibility for banking supervision to the European level. We can take this back at any time.”
Those calling for greater risk-sharing at Germany’s expense should also keep in mind that the country’s Karlsruhe-based Federal Constitutional Court is scrutinizing all proposals “concocted in Brussels or elsewhere in Europe,” Meister said. The government and Merkel’s coalition won’t risk backing anything that might later be defeated in court, he said.
Merkel also won’t ease pressure on Greece, a country that’s kept alive by the smallest possible installments of aid that are linked to compliance with an adjustment program that requires job cuts and the sale of state-owned companies.
The target for Greek debt is to fall to 124 percent of gross domestic product in 2020, from a peak the IMF now sees at 176 percent of GDP this year. Euro governments last November agreed to review the need for additional aid for Greece before the second program expires in 2014.
“In light of the results of the evaluations that have already been agreed in Greece’s second program, one can consider whether there are other technical options to give Greece relief,” Meister said. Tweaking loan maturities and costs “doesn’t mean that there’s a haircut” on Greek debt.
Europe’s governments should seek agreement on the introduction of orderly state insolvency procedures in the EU over the longer term, also as a measure to calm financial markets, Meister said.
“One has to deal with the question of what to do in a case that can’t be solved by means of an aid program,” he said. “Independent of current programs, wouldn’t it make sense to have such a procedure?”